March 18, 2009 / 2:19 PM / 10 years ago

WRAPUP 6-AIG CEO asks employees to repay some bonus money

* Lawmakers seek subpoenas, surtaxes on bonuses

* Obama says anger at AIG is justified

* AIG anger could turn off investors key to bailout plan (Adds House panel vote, Cuomo statement)

By Emily Kaiser and Corbett Daly

WASHINGTON, March 18 (Reuters) - The head of AIG said on Wednesday he was trying desperately to prevent the company from collapsing when he allowed the payment of $165 million in bonuses that have stoked outrage stretching from the White House to Main Street.

Edward Liddy, who took over as chairman and chief executive of American International Group Inc (AIG.N) in September when the government stepped in with the first of a series of rescues, said he had asked employees receiving more than $100,000 in bonuses to repay at least half.

“Americans are asking quite simply, Why pay these people anything at all?” Liddy told a House of Representatives subcommittee. “Here’s why: I am trying desperately to prevent an uncontrolled collapse of that business.”

Liddy said some employees had already given back their entire bonuses, and some had left the company after receiving their bonuses.

AIG has drawn intense fire from the public, politicians and President Barack Obama for accepting up to $180 billion in government aid and then handing out fat bonuses — including bonuses of $1 million or more paid out to 73 people.

Liddy said the payouts were necessary to retain top employees with the specialized knowledge to dispose of $2.7 trillion in complex securities that ended up dragging the company to the brink of collapse last year.

Fury over the bonuses threatens to undermine Obama’s efforts to solve the credit crisis and pull the economy out of a deep recession. He has said he might have to ask Congress for money beyond a $700 billion bailout fund approved in October.

“People are right to be angry. I’m angry,” Obama said on Wednesday.

Many voters view the financial rescues as free handouts to wealthy executives who made bad decisions, and the big bonuses have fueled that anger.

“It is morally reprehensible and fiscally irresponsible to expect bonus money for bringing a corporate giant to its knees,” said Democratic Representative Carolyn Maloney.

Another Democrat, Representative Paul Hodes, quipped that AIG stood for “arrogance, incompetence and greed.”

But there was some concern that the firestorm in Washington would turn off the big private investors, such as hedge funds, the government needs to help buy up bad assets from banks’ balance sheets and stabilize the financial system. [ID:nN18394648]

LIDDY SAYS EMPLOYEES THREATENED

Channeling the populist sentiment, several Democrats and Republicans in Congress sought to force AIG to disclose details about the bonuses, and proposed taxing them so heavily that the recipients could wind up with nothing.

Representative Barney Frank, the Democrat who chairs the House Financial Services Committee, pressed Liddy to release the names of those who received bonuses and said he intended to subpoena the information.

Liddy refused, citing concerns for the safety of his employees, and read aloud what he said were examples of death threats that had been received [ID:nN18546422].

Separately, three Republicans asked the Senate Banking Committee to subpoena for documents related to the bonuses, and the House Judiciary Committee approved legislation aimed at recovering the money [nN18372196].

New York Attorney General Andrew Cuomo, who has subpoenaed AIG for a list of those who received bonuses, said asking employees to give back half the money was “too little too late” and would cover only 298 of 418 bonus recipients.

“If AIG has nothing to hide and is not embarrassed about these payments, they should turn over the list now. The era of shrouding huge bonuses in secrecy must end,” he said in a statement. “We prefer not to go to court on this matter, but AIG is leaving us little choice.”

In addition, the U.S. Justice Department is working with the Treasury to determine how it might go about recovering the bonuses, Attorney General Eric Holder said.

The House hearing room was packed with more than 80 people inside and dozens more waiting outside. The line to get in was already 40 deep more than an hour before the hearing began.

When Liddy entered, he stopped briefly to talk with a handful of protesters, many of whom were dressed in bright pink clothing and carrying signs.

Representative Paul Kanjorski, a Democrat who chairs the subcommittee, grew increasingly frustrated with the disruption and told the protesters not to “try my patience.” He shouted “Signs down!” and later had the signs confiscated.

One of them read, “Fire Geithner,” referring to Treasury Secretary Timothy Geithner, who has been a key architect of the bailouts.

Obama said he had complete confidence in Geithner, and said he was “making all the right moves” in fixing the economy.

The situation has put Obama in a tight spot as he tries to strike a balance between sharing the outrage and keeping his focus on the bigger issue of repairing the economy.

“An instinct exists among members of our political class to convene show trials to make up for their own shortcomings,” said Joseph Brusuelas, a director at Moody’s Economy.com in West Chester, Pennsylvania. “This is on the verge of damaging the real progress made by the Federal Reserve in addressing the financial crisis.”

For the AIG retention bonus contracts, see www.house.gov/apps/list/press/financialsvcs_dem/press031809.shtl (Additional reporting by Kristin Roberts, Karey Wutkowski and Jeremy Pelofsky; Writing by Emily Kaiser; Editing by Andrea Ricci and Leslie Adler)

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