White House orders legal action over bonuses for AIG traders

Employees at AIG's London-based derivatives business face losing $165m (£117m) in retention bonuses amidst a political firestorm in the US. Barack Obama stepped in to the row yesterday to order that AIG, which was nationalised by the US government to stop it going bust last year, use all legal means to avoid paying the bonuses.

A White House official last night suggested that a $30bn cash infusion from the government, which was announced two weeks ago but has not yet been paid, could be made contingent on the scrapping of the payments.

The financial products division wrote insurance on trillions of dollars of mortgage derivatives and other credit market instruments, but proved unable to meet its obligations when the economy went into a dive. Some $170bn in US government money has gone to pay off trading partners.

It has emerged that financial products group employees will receive $450m in bonuses. Mr Obama called it an "outrage" and demanded that the Treasury use its leverage and "pursue every legal avenue" to have the payments rescinded.

"This is a corporation that finds itself in financial distress due to recklessness and greed," he said. "Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165m in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?"

New York's attorney-general, Andrew Cuomo, was also circling the company yesterday, demanding to know who was getting the cash and whether the company could avoid paying out by claiming the money was the proceeds of fraud. Mr Cuomo said he would issue subpoenas if AIG didn't voluntarily surrender the names of the employees receiving bonuses. "Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system," he said.

The political row has only intensified since news of the bonuses emerged. Over the weekend, Larry Summers and Austan Goolsbee, Mr Obama's two top economic advisers, both described the payments as outrageous, but suggested that there had been no way to legally stop them.

Yesterday, Barney Frank, chairman of the House of Representatives financial services committee, said that many of the employees should be fired to save money, if there was really no way to stop the payments.

The money is coming out of a pool for retention bonuses, so that AIG can keep staff it needs to help wind down the derivatives business, the insurer has said. The process of unpicking its network of trading relationships has proved even more complex than it seemed last September, when the government decided the company was too big to let fail.

Over the weekend, AIG revealed details of which trading partners received the largest payments of government money during its first three-and-a-half months on government life support. The payments included additional collateral for existing obligations and purchases of outstanding credit default swaps, designed to close the trading positions.

Through three separate types of transactions, Goldman Sachs received an aggregate $12.9bn. Among European banks, SocGen was the biggest recipient at $11.9bn, Deutsche Bank got $11.8bn and Barclays had $8.5bn.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee