CEO Liddy: No More Bailouts Needed for AIG

May 13, 2009— -- "We will do everything we can to not require additional federal money," the CEO of troubled insurance giant AIG told a congressional panel today.

Totaling up the $170 billion AIG has received from Federal Reserve borrowings and money from the Troubled Assets Relief Program, CEO Ed Liddy told the House Oversight and Government Reform Committee that the company believes that "in today's marketplace that that is sufficient and we will not need additional money."

But the declaration came with a big if: "That answer is very dependent upon what happens to the overall economic conditions and financial market place around the globe."

Liddy assured the lawmakers that "we're doing everything we can" and that AIG believes it has "a terrific plan, a viable plan that's not as dependent on the capital markets as other plans might have been. But asset values have to stay strong. There has to be a capital market that enables us to take businesses public."

"I think that that will happen, but I can't give you a guarantee on that. I can't control what happens in the worldwide financial market place."

Skeptical lawmakers pressed for more details of the plan, called Project Destiny. The panel's chairman, Rep. Edolphus Towns, D-N.Y., said that Congress needs to fully understand the "long-range plan" for AIG.

Liddy cautioned that the details of the plan are sensitive and could destroy AIG's ability to remain competitive if released, but he did agree to release portions of the plan to the lawmakers.

Liddy's optimistic forecast is just one of four areas in which he touted "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 said in his opening remarks.

Noting various restructuring moves within the company, and the "significant progress" in winding down the complex derivatives portfolio of the controversial AIG financial products division, which almost singlehandedly drove the company into the ground with risky credit-default swaps. The exposure has now dropped from $2.7 trillion to $1.5 trillion, Liddy said.

AIG CEO Decries 'Rampant, Unwarranted Criticism'

"We are selling assets and businesses where possible, despite adverse conditions in global financial markets," he continued.

When the CEO first testified before the House panel March 18, lawmakers grilled him for more than five hours about the company's controversial payment of $165 million in employee retention payments earlier that month.

In taking the witness stand again today, Liddy reminded 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 said. "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 -- the businesses we are attempting to sell to repay the American taxpayer -- 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," noted Liddy. "In fact, just the opposite is true. We intend for taxpayers to realize the fullest possible value from every asset disposition."

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 today'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.

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.