Washington: Insurance giant AIG will be required to reimburse the government for hefty executive bonuses in order to get additional bailout funds, Treasury Secretary Timothy Geithner said Tuesday.
In a letter to House Speaker Nancy Pelosi following a firestorm over the $165 million in executive payouts, Geithner said it was impossible to prevent the contractual bonuses from being paid and said it may be difficult to recoup the payments.
Geithner said President Barack Obama “shares that outrage and so do I” over the bonuses paid to executives at the firm that neared a meltdown before last year’s government rescue.
The Treasury chief also said he wanted to “accelerate” the winding down of AIG, which is largely controlled by the government, following he massive bailout of the firm which backed risky financial sector bets on the US housing market.
“We will continue our aggressive efforts to resolve the future status of AIG in a manner that will reduce the systemic risks to our financial system while minimizing losses to taxpayers,” he said in the letter. “And we will explore any and all responsible ways to accelerate this wind down process,” he said.
On the bonuses, Geithner said the Department of Justice is reviewing “what avenues are available” to recoup bonuses already paid. If they violate provisions of the economic recovery plan passed last year, he said the government would negotiate with the company and employees on a payback.
He said future pay would be subject to “strict” limits imposed in new legislation covering bailed-out firms.
Further, he said the government would “impose on AIG a contractual commitment” to repay the $165 million to taxpayers. And he said that sum would be deducted from the $30 billion pending from AIG’s bailout of more than $170 billion.
Lawmakers said they were looking at punitive tax measures to reclaim the bonuses paid largely to the same London-based financial products traders who brought ruin to AIG and helped to ignite the global financial crisis.
Geithner said he was informed of the bonuses last week by his staff and registered “strong objections.”
But he said AIG’s chief executive Edward Liddy, who was installed after the US bailout last year, told him these payments were negotiated in April 2008 and “contractually committed.”
Geithner said the Treasury Department’s lawyers “agreed, in consultation with outside counsel, that it would be legally difficult to prevent these contractually-mandated payments.”
But he pointed out that under legislation the government may have the right to review compensation to the 20 most highly paid executives at firms getting public funds.
If the payments were “inconsistent” with the law or “contrary to the public interest,” Geithner said the government may have a right to recoup the funds.
But Geithner defended Liddy’s role in the matter, saying he was put in place last year “at the request of the government to help rehabilitate the company and repay taxpayer funds.”