American International Group, under pressure to reveal how it spent billions of dollars in taxpayer funds since its September bailout, said $US105 billion ($159 billion) flowed to US states and banks including Goldman Sachs Group, Societe Generale and Deutsche Bank.
Banks that bought credit-default swaps or traded securities with AIG got $US22.4 billion in collateral, $US27.1 billion in payments from a US entity to retire the derivatives, and $US43.7 billion tied to the securities-lending program, AIG said in a statement. States led by California and Virginia got $US12.1 billion tied to guaranteed investment contracts.
``It puts a sour taste in the American taxpayer's mouth, but you have to look at that in terms of the bigger picture,'' said Donald Powell, chairman of the Federal Deposit Insurance Corp. from 2001 until 2005. ``If you're going to have any chance of recovery you probably have to stay with it.''
The disclosure may fuel a backlash over AIG's bailout, valued at about $US160 billion as of March 2, which has already drawn expressions of anger and frustration from Congress, Treasury officials and Federal Reserve Chairman Ben S. Bernanke. AIG was lambasted yesterday for awarding $US165 million in retention pay to employees of the unit that sold the swaps, deals that helped trigger the global credit crisis. AIG has said it plans to spend as much as $US1 billion to keep people from leaving as it sells units.
Goldman Sachs led beneficiaries, with $US12.9 billion, followed by SocGen, France's No. 3 bank, with $US11.9 billion, and Deutsche Bank, Germany's biggest lender, with $US11.8 billion. New York-based AIG and the Fed had previously refused to reveal the counterparties, saying the contracts were confidential and that the information could damage AIG's business prospects.
``I was happy to see that AIG finally handed over the counterparty information we've been requesting for months,'' said Representative Elijah Cummings, a Maryland Democrat on the House Oversight Committee. ``However, I am deeply concerned that Goldman Sachs received so much money from AIG considering the relationships between the two companies. We will certainly be investigating this further to ensure that this is merely a coincidence.''
Henry Paulson, former CEO of New York-based Goldman Sachs, made the decision to save AIG while he was Treasury Secretary. He appointed AIG CEO Edward Liddy, formerly CEO of Allstate Corp., whom he knew from the executive's service on the board of Goldman Sachs.
Goldman Sachs spokesman Michael Duvally declined to comment on the statement from Cummings. On AIG, he said, ``Goldman Sachs's exposure to AIG has always been collateralized and hedged.'' Spokespeople for the other US and European banks named by AIG either declined to comment or couldn't be reached for comment.
The collateral payments were made from the government's initial $US85 billion emergency loan to AIG. The company almost collapsed in September after credit-rating downgrades triggered payments to banks that had bought swaps. AIG got another $US37.8 billion in October when its securities lending program, which invested in subprime securities, had a cash shortfall.
AIG's third bailout, in November, totaled $US150 billion and included the government-created Maiden Lane facilities to wind down contracts tied to some of the insurer's swaps and securities lending program. The company needed its rescue revised again this month, easing previous loans, swapping units to pay down debt and providing a new $US30 billion credit line after AIG posted a $US61.7 billion fourth-quarter loss, the biggest in US history.
AIG's disclosure came after consultation with the Fed and is intended to provide transparency for the use of government funds, the company said in its statement. In a prepared statement, the Fed thanked AIG ``for finding a balance between its concerns with confidentiality and the concerns of the public interest that may be served through the release of this information.''
The Fed's stance was at odds with the view earlier this month of Fed Vice Chairman Donald Kohn. He told senators at a March 5 hearing that the counterparties should be kept secret, saying that releasing the names would drive business away from AIG and worsen turmoil in financial markets.
``We need AIG to be stable and to continue in a stable condition,'' Kohn told the senators. ``I would be very concerned that if we gave out the names of counterparties here, people wouldn't want to be doing business with AIG.''
Bernanke yesterday elaborated on comments earlier this month that the AIG bailout made him angrier than any other incident during the financial crisis, saying he ``slammed the phone more than a few times'' when discussing the company.
``It's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets,'' Bernanke said in an interview on CBS Corp.'s ``60 Minutes'' program. Yet failing to rescue the company would ``risk enormous impact, not just in the financial system, but on the whole US economy,'' he said.
AIG released the counterparty information in the aftermath of a scolding from Treasury Secretary Timothy Geithner and lawmakers over its bonus plans. Public anger has been stoked by revelations of bonuses paid by firms at the center of the financial-market meltdown that has plunged the US into what may become the deepest recession since World War II. New York Attorney General Andrew Cuomo is investigating $US3.6 billion in bonuses paid by Merrill Lynch & Co. shortly before it was acquired Jan. 1 by Bank of America Corp.
After an inquiry by Geithner, AIG agreed to reduce some retention payments in 2009 by 30% and tie bonuses to the company's recovery, according to a person briefed on the matter and a letter from Liddy. AIG still planned to distribute about $US165 million yesterday because of legally binding contracts, said the person, who declined to be identified because the talks weren't public.
``I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them,'' Liddy wrote to Geithner in a March 14 letter, which said the contracts predated his arrival.
Geithner telephoned Liddy on March 11 to demand changes to AIG's plan, an administration official said. The Treasury didn't try to halt yesterday's payments after determining that AIG was legally bound to make them.
Lawrence Summers, director of the White House National Economic Council, called the AIG bonus payments ``outrageous'' in an interview yesterday on ABC's ``This Week'' program. AIG is ``abusing the system,'' Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, told ``Fox News Sunday.''
Retention payments for employees in the unit will be cut by at least 30% for 2009, Liddy wrote. The top award in the unit was about $US6.5 million, and six other employees got more than $US3 million, Liddy wrote.
About $US165 million tied to 2008 must be paid by March 15, on top of $US55 million already handed out in December, according to an AIG summary. Another $US230 million for 2009 retention may be reduced as parts of the business are sold and employees are laid off.
The Treasury may try to recoup some of the payments to financial products unit employees, according to the person familiar with the talks.
``Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system,'' Summers said. Even so, ``The government cannot just abrogate contracts.''
Liddy's letter didn't mention any cuts in retention payments at other business units. In addition to the financial products unit, AIG planned to award $US148 million to top executives, and about $US470 million for three other subsidiaries, according to a person familiar with the plans and company documents. An AIG filing on March 2 confirmed a Bloomberg report that all the insurer's employee retention plans might cost $US1 billion.
Bloomberg News
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