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AIG Bonus Bill Passes in Congress, While White House Presses On(BestWire Services Via Acquire Media NewsEdge) Furor over $165 million in bonuses paid to executives at American International Group Inc.'s Financial Products unit moved to the floor of the House of Representatives March 19, as the House passed legislation imposing a 90% tax on bonuses of more than $250,000 at firms receiving more than $5 billion in federal assistance. Passed by a 328-93 margin, H.R. 1586, sponsored by Ways and Means Committee Chairman Charles Rangel, D-N.Y., cleared the two-thirds majority needed to pass, as it was considered under a suspension of the rules. A number of House Republicans had committed instead to vote for an alternative measure sponsored by Minority Leader John Boehner, R-Ohio. "When you weigh the harm that AIG and other bad actors have done to the system, our economy, and American families, with the concerns regarding the precedent of using the tax code, there is no question this legislation is the best decision we can make," Rangel said. "It is not enough to say 'you can't do anything about it.' We have to do something about it." In addition to AIG, the restrictions would impact about a dozen firms, including Fannie Mae and Freddie Mac, GMAC LLC, Wells Fargo, Citigroup and Bank of America. Separately, the House Judiciary Committee advanced legislation sponsored by Chairman John Conyers, D-Mich., authorizing Attorney General Eric Holder to demand repayment of compensation from firms that received more than $10 billion in federal aid. Holder himself has confirmed Justice is working with Treasury Secretary Tim Geithner on legal avenues to seek repayment of the funds. Geithner announced late March 16 that the government would condition a $30 billion capital commitment made under the most recent revamp of AIG's $182.5 billion rescue package on repayment of the bonuses made to AIG's Financial Products division. AIGFP was a unit that wrote credit default swaps and other derivatives that ultimately imperiled AIG's solvency when it was unable to meet tens of billions of dollars in collateral calls following a series of rating downgrades in September 2008. Senate Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Chuck Grassley, R-Iowa, likewise said they are working on legislation that would place a 35% excise tax on firms that receive money from the Troubled Asset Relief Program for their bonus costs and also tax the recipients for 35% of their bonus income. In a letter to AIG Chief Executive Officer Edward Liddy, the senators demanded the names of all bonus recipients and the amount of money each received, information likewise sought by House Financial Services Committee Chairman Barney Frank, D-Mass. Frank has threatened to subpoena the information of the company does not provide it voluntarily. "Although these payments were ostensibly part of an employee retention plan, there are press reports that many bonus recipients are no longer with the company," Baucus and Grassley wrote. "Because taxpayers have a deep interest in making sure their money is not squandered by financial institutions receiving bailout money, we are interested in receiving information on these executive bonuses." Grassley, who has called for Treasury's Inspector General to investigate the role the department played in approving the bonuses, also offered an apology for comments made to an Iowa radio station in which he suggested executives at bailed out firms should commit suicide in a manner similar to the ancient Japanese practice of seppuku. "Of course I don't want anybody to take their life," Grassley said. According to Liddy, a number of individuals already have returned the bonuses, and Liddy told a House subcommittee March 18 he has asked employees who have received bonuses of more than $100,000 to return at least half of their payments. New York Attorney General Andrew Cuomo has said his office has learned that 73 employees of the AIGFP unit pocketed bonuses of $1 million or more, with the highest bonus being more than $6.4 million. Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook. Shares of AIG (NYSE: AIG) were trading at $1.61 per share in the afternoon of March 19, up 15.6% from the previous close. (By R.J. Lehmann, Washington bureau manager: [email protected]) Copyright ? 2009 A.M. Best Company, Inc. |