The attorney-general of New York Andrew Cuomo has added his comments to the melee surrounding bonuses at American International Group (AIG). The insurance major, which has so far taken $173 billion of taxpayer bailout money, has set aside a $450 million bonus pool for employees of AIG Financial Products. AIGFP is the division which, among other things, traded complex credit products. Specifically, $165 million worth of bonuses were due to be paid by March 15, following a $55 million payout already made.
The AIG bonuses have led to public outrage and President Barrack Obama has condemned the payments and gone on record saying that he will explore all legal avenues to block them.
On March 16, Cuomo sent a letter to Edward Liddy, chairman and CEO of AIG since it was brought under the control of the US government, demanding details of the individuals to whom the bonuses are intended to be paid. Liddy had earlier said that AIG is contractually obliged to pay the bonuses so Cuomo has also requested the contracts under which the payments are obligatory. Further, Cuomo has asked for details of the job description and performance of each intended recipient. Cuomo has said he is ready to subpoena the information if it is not voluntarily provided.
Liddy has said that the fate of AIGFP's $1.6 trillion derivatives portfolio and a number of complex trades on its books is linked to retaining the traders who are due to be paid the bonuses and that the compensation plan was developed to retain 400 employees critical to the AIGFP business.
Yesterday, Cuomo disclosed that the top bonus recipient at AIG received more than $6.4 million; the top ten bonus recipients received a combined $42 million; 22 individuals received bonuses of $2 million or more, and combined they received more than $72 million; and 73 individuals received bonuses of $1 million or more. Further, 11 of the individuals who received retention bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million. Cuomo shared the information in a letter to Barney Frank, chairman of the House of Representatives' Financial Services Committee, in advance of a House meeting with respect to AIG today.
On March 9, it was Bank of America (BoA) CEO Kenneth Lewis who was the subject of Cuomo's ire. Cuomo wrote to Lewis demanding that he share information related to which individuals at Merrill Lynch and BoA received bonuses of $1 million or more. Cuomo's letter is co-signed by Frank. Cuomo cited $3.6 billion worth of bonuses distributed to Merrill employees and the $3.3 billion distributed by BoA, despite both banks having received bailout packages funded by US taxpayers. The BoA-Merrill Lynch combine has received $45 billion from the Troubled Asset Relief Programme to date.
Shareholder advisory firm and activist, CtW Investment Group on March 12 added its voice to Cuomo's demand to Lewis. CtW had already said on March 5 that it will oppose the re-election of Lewis as chairman as well as two additional directors who it deems "most responsible for his [Lewis's] continued employment" at the forthcoming shareholders vote on BoA directors at a meeting scheduled for April 29. Among other things, CtW has cited the 90% drop in BoA's share price since it announced the takeover of Merrill and the fact that Lewis "allowed Merrill to pay out $3.6 billion in bonuses, even as the firm was haemorrhaging money".
"The interests the bank [BoA] is seeking to protect by refusing to disclose the subpoenaed bonus information are those of its directors and executives, not those of the corporation and its shareholders," says William Patterson, executive director at CtW. "Full disclosure is likely to expose board of director and management failures, including a stark failure to comply with Merrill Lynch's stated pay-for-performance compensation policies."
Cuomo has subpoenaed the BoA information and the matter is currently sub-judice. Bank of America is arguing that the information is proprietary, and that it would be at a competitive disadvantage if it was released. Specifically, it has said that key affected employees would resign because of privacy or safety concerns.
A court ruling on whether BoA is obliged to release the names of bonus recipients is expected by March 20. On it hinges the future of compensation practices not just at BoA, but across US investment banks.
