The payments to 400 employees of the financial-services unit – some of whom no longer work at the insurer – were promised last year before the government bailout

American International Group (AIG), the troubled US insurance giant which is received several lifelines from the Obama administration, is all set to shower US$450mn in bonuses to employees of its financial unit that is believed to be responsible for the New York insurer’s near collapse.
In a letter to Treasury Secretary Timothy Geithner dated Saturday, AIG CEO Edward Liddy said the company had committed to paying the bonuses to employees of the financial-products unit and that they were binding obligations the company cannot legally rescind.

The first payments are due March 15.

“I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them,” wrote Liddy, citing the recommendation from the insurer’s legal counsel.

The payments to 400 employees of the financial-services unit – some of whom no longer work at the insurer – were promised last year before the federal government bailout. Bonuses range from as little as US$1,000 to as much as US$6.5mn.

The move sparked off outrage from the Obama regime, which has prevented the failure of AIG twice by providing the insurer with more than US$173bn in aid. The federal government now owns 80% of AIG.

Larry Summers, one of President Obama’s top economic advisers, called the AIG bonuses outrageous. A key House lawmaker, Barney Frank, said that the government should examine whether the bonuses are legally recoverable.

Summers said the US government would examine its options, but he added that it might not be able to terminate prior bonus agreements.

Separately, AIG said US$105bn of taxpayer money went into US states and banks, including Goldman Sachs, Societe Generale and Deutsche Bank. Goldman led beneficiaries, with US$12.9bn, followed by SocGen with US$11.9bn, and Deutsche Bank with US$11.8bn.

The cash was used to cover collateral payments, cancel derivative contracts and meet obligations at AIG’s securities lending business after the insurance firm had to be bailed out last year.

Banks that bought credit-default swaps or traded securities with AIG got US$22.4bn in collateral, US$27.1bn in payments from a US entity to retire the derivatives, and US$43.7bn tied to the securities-lending program, AIG said yesterday in a statement.

States led by California and Virginia got US$12.1bn tied to guaranteed investment contracts.

The disclosure by AIG is only going to add to the growing noise of criticism over the questionable federal bailout of the insurance major. The rescue has already drawn a series of protests from Congress, Treasury officials and even Federal Reserve chairman Ben S. Bernanke.

AIG said it recognises the importance of upholding a high degree of transparency with respect to the use of public funds.

The remainder of the money it received from taxpayers has been used to repay debt, boost capital levels at some of its units and fund vehicles created to wind down its derivatives contracts, it added.

Fed chief Bernanke said earlier this month that the AIG bailout made him angrier than any other incident during the financial crisis, saying that he slammed the phone more than a few times when discussing the company.

“It’s absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets,” Bernanke said in an interview on CBS Corp.’s “60 Minutes” program. Yet failing to rescue the company would “risk enormous impact, not just in the financial system, but on the whole U.S. economy,” he said.