Cummings fumes over AIG -- UPDATED
U.S. Rep. Elijah Cummings continues to fume over bonus payments to AIG executives to be paid this month, and is demanding that AIG CEO Edward Liddy resign.
Cummings sent a letter to Treasury Secretary Tim Geithner, asking that Treasury do everything in its power to keep bonus payments to AIG as low as possible, or possibly eliminate them.
Cummings has also invited the media to his Baltimore office today to talk more about the issue.
*UPDATE* -- The congressman's office has just released the text of his prepared remarks for the media availability. They include a renewed call for Liddy to resign. They are available by following the link below, as is the full text of the letter to Geithner.
Thank you all for coming today.
Last year, Congress passed the Troubled Assets Relief Program—TARP—to assist failing financial institutions.
Although this legislation was not perfect, it was necessary to stop the bleeding on Wall Street—because without stopping the bleeding on Wall Street, we will never be able to stop the hemorrhaging on Main Street.
And there is no doubt that there is hemorrhaging on Main Street.
This is not just a working class problem; many middle class families are finding themselves drowning in the effects of our failing economy with very few lending lifelines being extended to them from financial institutions.
Families cannot get home loans, students cannot get college loans, and small business owners are frequently finding their credit lines frozen.
TARP was designed to restore confidence in the market and enable institutions to begin lending again.
Unfortunately, some of the institutions receiving these TARP funds have been spending this money in reckless and irresponsible ways.
AIG is by no means the only offender, but it is certainly the most egregious.
This is an institution that has received some $180 billion in hard-earned taxpayer dollars from the very people who are suffering just to make ends meet.
And then, they are turning around and slapping these American taxpayers in the face by continuing the profligate spending and business-as-usual attitude.
Since November of last year, I have been critical of AIG’s so-called ‘retention payment’ programs.
I have never been able to fathom why AIG’s CEO Edward Liddy felt it necessary to spend one billion dollars—one BILLION dollars—on these bonuses—because, let’s face it, that’s what a ‘retention payment’ is.
Mr. Liddy and AIG have been very reluctant to release the information about these bonuses, and it is apparent why.
For months, we have been witnessing a pattern of deception by this company with regard to these payments.
First, they were just for 130 people.
Then, a few thousand—but with no payments being made to employees of the Financial Products division whose reckless actions drove the company into the ground.
And, then, of course, we learned that 450 MILLION dollars were to go to the FP division that put AIG on the brink of collapse.
As we learned over the weekend, a $165 million installment of that $450 million program will be made this month.
This behavior is outrageous and insulting to the American people who are footing the bill to keep this company afloat, and it must come to an end immediately.
Mr. Liddy has repeatedly claimed that these retention payments are necessary to keep the top talent at his company, but any credibility for this argument was lost last month when we learned that $57 million of these payments are going to employees who will be terminated!
This morning, I sent a letter to Treasury Secretary Timothy Geithner expressing my outrage at AIG.
In the letter, I asked for three key things:
· I want Treasury to identify exactly who at AIG’s FP division will be receiving multi-million dollar retention payments, as well as how many of these recipients are foreign employees in overseas offices.
· I want Treasury to forbid AIG from making any contractual arrangements involving employee compensation and bonuses until all federal aid has been repaid to the government.
The American taxpayers did not sign up to give millions of dollars in bonuses to executives while they are struggling to keep their own jobs and homes.
· I want Treasury to provide me with a detailed explanation of how it plans to hold AIG accountable to its written commitment to reduce retention payments due to the members of the FP division for their employment in 2009.
Unfortunately, AIG’s retention payments are not the only cause for concern today.
After months of prodding by Members of Congress, the company finally released information regarding its counterparties.
As I reviewed this information, two things jumped out at me.
I cannot help but be concerned by the $12.9 billion given to Goldman Sachs, given the relationship between these two companies.
Now, I am not saying that there was foul play involved in this situation, but I will certainly be calling for an investigation to ensure that this is nothing more than a coincidence.
I am also greatly concerned by the default swaps.
It appears that the swap-related claims were paid in full.
Many sources today have rightly asked whether this was appropriate and whether more could or should have been done to reduce the payments and, in essence, share the pain.
We need to know whether this was truly the best use of taxpayer funds.
I have repeatedly called on Edward Liddy to resign from his position as CEO of AIG, and I renew that call today.
It has become increasingly clear that he is not the right man for this job.
AIG is now essentially a publicly owned company, and the Americans who own this company deserve better.
March 16, 2009
The Honorable Timothy F. Geithner
Secretary, Unites States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Dear Secretary Geithner:
As a Member of Congress and the elected representative of the 7th Congressional District of Maryland, I have been deeply outraged by the retention payment and bonus plans that the American International Group, Inc. (AIG) has continued to implement even after the receipt of what is now some $170-$180 billion in taxpayer assistance following the virtual collapse of the firm.
The retention payment plan “installment” that is due by March 15, 2009, to the employees of the Financial Products (FP) division of AIG constitutes the continued payment by that firm – and now, by the American taxpayers – of bonuses for the abject failure of the FP division. In light of the ongoing bailout provided by the American taxpayer, it is time that we stop rewarding failure. In fact, it is long past time that those who destroyed AIG and, by the Department of the Treasury’s own account, created through their reckless actions a significant systemic risk to America’s economy be held accountable for their failures.
The retention payment “installment” due in March 2009, which reportedly totals approximately $165 million, is part of a larger “retention payment” program created by AIG in early 2008 at a time when, apparently, it became aware of a significant decline in the performance of the FP division that it obviously believed would cause employees to leave the firm. Thus, according to an AIG filing with the Securities and Exchange Commission (SEC), “In the first quarter of 2008, AIGFP established an employee retention plan, which guarantees a broad group of AIGFP’s employees and consultants a minimum level of compensation for each of the 2008 and 2009 compensation years, subject to mandatory partial deferral which, in certain circumstances, will be indexed to the price of AIG stock. The deferred amounts may be reduced in the event of losses prior to payment. The expense related to the plan is being recognized over the vesting period, beginning in the first quarter of 2008” (quoted from AIG’s 10-Q filing for the quarterly
period ended March 31, 2008, page 76). (A similar disclosure is repeated in AIG’s subsequent SEC filings.)
Mr. Edward Liddy, the Chairman and Chief Executive Officer of AIG, wrote in his letter to you that these retention payments are “binding obligations” on AIG and that despite AIG’s best efforts to restructure these payments, they cannot be altered and must now be paid. Once again, the American taxpayers – who never made any contractual obligations to AIG’s employees – are apparently bound to pay for AIG’s management failures.
It would appear from the AIG white paper on AIGFP retention plan that several hundred million dollars in retention payments are to be due to employees engaged by AIGFP in 2009. AIG writes in its letter to you that it “commits to use best efforts to reduce expected 2009 retention payments by at least 30%.” I write today to request that the Department of the Treasury explain specifically what steps it will take to hold AIG to this commitment and to ensure that any contractually obligatory retention payments paid by AIG to personnel in the FP division for the year 2009 are as low as possible or, preferably, that they are not made at all.
Information provided by AIG in its white paper indicates that the individual retention awards paid to FP personnel will “range from $1,000 to slightly less than $6.5 million.” Seven employees will receive more than $3 million. I request that you work to identify who those individuals receiving multi-million dollar retention payments are and to determine whether they had any specific and attributable role in the downfall of the FP division. Further, I would like to know how many of the recipients of the FP-related retention payments are foreign employees located in overseas offices.
Additionally, I urge that you analyze all other contractual arrangements that may bind AIG to make obligatory compensation payments of any kind and that you work to require to the fullest extent possible given the current relationship between the U.S. government and AIG that such contractual arrangements are eliminated. Further, Treasury must ensure that AIG does not create any future contractual arrangements that guarantee any level of compensation to its employees so long as even a single penny of U.S. taxpayer aid to the company has not been repaid to the government.
I also bring to your attention a note on page 222 of AIG’s most recent10-K filing (Annual Report for the fiscal year ending December 31, 2008) attached to a chart discussing “Total Restructuring and Separation Expenses” which states “Restructuring expenses include $44 million of retention awards and Total amount expected to be incurred includes $57 million for retention awards for employees expected to be terminated.” In light of this troubling information, I ask that you determine and report how much AIG has awarded in retention payments for “employees expected to be terminated” (and for employees who have as of today been terminated) – both within the FP division and under other retention payment programs instituted by AIG. Specifically, are any individuals receiving retention payments under the FP scheme expected to be terminated prior to the full dismantling of that division?
Separately, Mr. Liddy wrote in his letter that Treasury has “also asked AIG to rethink our 2008 corporate bonus proposals.” I request that Treasury detail exactly what bonus plans AIG will be allowed to implement going forward, how much these plans will cost, and how much each recipient of an AIG bonus will receive. In fact, I would like to understand why AIG should have a bonus pool at all given its current condition.
In his letter to you, Mr. Liddy stated “we cannot attract and retain the best and brightest talent to lead and staff the AIG businesses – which are now being operated principally on behalf of the American taxpayers – if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.” If the employees of AIG are worried that their compensation is “subject to continued and arbitrary adjustment by the U.S. Treasury,” I can assure them that the U.S. taxpayers now paying their salaries are outraged by the “continued and arbitrary adjustment” of the bailout we are funding for AIG. Simply put, we as a nation can do better than this.
I appreciate your attention to these matters and thank you for your ongoing work to ensure the most effective and efficient use possible of taxpayer funding. I look forward to working with you as we create a regulatory structure that will ensure that the types of failures that have led to the current economic crisis are never rewarded or repeated.
Elijah E. Cummings
Member of Congress