CEO Liddy: No More Bailouts Needed For AIG

At the AIG hearing trustees asked for new board members & new compensation plan.

May 12, 2009, 3:07 PM

May 12, 2009— -- AIG , the recipient of approximately $170 billion in taxpayer bailout money, will not need more government aid, CEO Ed Liddy plans to tell Congress.

"We are stabilizing AIG's liquidity so that we do not need support beyond those amounts that the government has already authorized," Liddy states, according to prepared testimony for Wednesday morning's hearing before the House Oversight & Government Reform Committee. "Although as I have said before the state of the economy will be a factor."

The optimistic forecast is just one of four areas in which Liddy touts "substantial progress" made as part of the company's ongoing restructuring.

"We have reduced, but not yet eliminated, the systemic risk that AIG presents to the global system," he says. "We are selling assets and businesses, despite adverse conditions in global financial markets."

"We are restructuring some businesses for public offerings, for later disposition, or to be wound down so that future losses can be mitigated or avoided," he states.

Liddy notes that the company continues to wind down the complex derivatives portfolio at the Financial Products unit, which almost single-handedly drove the company into the ground with risky credit-default swaps. The exposure has now dropped from $2.7 trillion to $1.5 trillion.

When the CEO first testified before the House panel on March 18, lawmakers grilled him for over five hours about the company's controversial payment of $165 million in employee retention payments earlier that month. Before taking the witness stand again on Wednesday, Liddy reminds lawmakers of the government's massive stake in AIG.

"It is critical that we not lose sight of the fact that we are partners," he says. "When the employees of AIG make mistakes, we expect to be criticized. But rampant, unwarranted criticism of AIG serves only to diminish the value of our businesses around the world - to the detriment of our shareholders, including taxpayers, who own some 80 percent of AIG."

"Our plan is explicitly designed to avoid having to divest AIG assets at fire-sale prices," notes Liddy. "In fact, just the opposite is true. We intend for taxpayers to realize the fullest possible value from every asset disposition."

Trustees Want New Compensation Policies

Meanwhile, the group responsible for overseeing the American taxpayers' 80 percent stake in AIG wants new board members at the company and a broad review of compensation policies.

The AIG Credit Facility Trust, an independent three-person group established by the Federal Reserve Bank of New York in January to manage and dispose of the government's voting stock of AIG, will also testify at Wednesday's hearing.

"We are actively seeking new members of the board who could add important skills and perspectives," they write in their prepared testimony, noting that they hope to make an announcement "shortly."

The trustees also demand that by the end of the year Liddy produce a new compensation plan in "a thoughtful, prudent, and fair manner."

In a letter to Liddy dated May 7, they wrote, "We recognize that crafting such a comprehensive plan will be a significant challenge in light of the constraints under which AIG must operate. In spite of the challenges, it is essential that a comprehensive plan be developed by year-end."

The trustees want the plan to include "an overarching performance-based compensation philosophy and consistent approach the business units and operations of AIG that includes broad oversight by the board of directors."

The plan, the trustees stated in their letter, should "reward long-term, sustainable value creation" and have "metrics designed to align employees' interests with those of shareholders." It should also "encourage appropriate risk-taking" while providing "for the appropriate balance between short-term and long-term compensation" and "benchmark AIG's compensation levels" against the company's competitors.

One of the reasons AIG cited for dishing out the retention payments was to keep key executives from fleeing the embattled insurance company for better offers elsewhere.

Republican lawmakers on the House panel, led by ranking member Darrell Issa of California, are expected to ask the trustees about their responsibilities, their work operations, and their accountability to taxpayers.

GOP Members Back Trustees

Calling the AIG Trust "an unregulated and unaccountable entity responsible for $70 billion of taxpayer money invested in AIG stock," the GOP members of the committee note that the trustees cannot be held liable for any losses that the government suffers.

"The AIG Trust's broad indemnification of the actions of the AIG Trustees, combined with the AIG Trustees' ambiguous duty to act 'in the best interests of the Treasury,' reduces confidence that the AIG Trustees will act in the best interests of the taxpayers."

Republicans also cite that the trustees cannot be fired even if government officials disagree with their decisions.

"This raises a troubling and urgent question: who can the American taxpayers hold accountable if the trustees make a decision that is not in their best interest?"

But in their prepared testimony for the hearing, the trustees defend their role with the company, while also acknowledging the difficulty of the task at hand.

"Since the Trust was formed in January, the amount of money the government has at stake in AIG has grown, and the situation has become more complex and challenging," they say. "We are committed to seeing through this chapter in the company's history in the best interests of the Treasury and the taxpayers of this nation. We are under no illusions that our task will be easy. Indeed, it may be the most challenging task any of us has undertaken in our professional careers."

The trustees, like Liddy, also warn lawmakers that with so much taxpayer support at stake, the government needs to back the company, not blast it at every turn.

"It is imperative that we continue to support AIG's efforts for the additional reason that if we do not, billions of dollars in taxpayer money could be lost," the trustees state.