Retention Bonus

2nd UPDATE:73 At AIG Received Bonuses Of $1 Million Or More - NY AG

(Adds White House comment, comment from AIG spokesman beginning in ninth paragraph.)

By Chad Bray

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- New York Attorney General Andrew Cuomo said Tuesday that American International Group Inc. (AIG) granted retention bonuses of $1 million or more to 73 people in its AIG Financial Products subsidiary, including 11 who no longer work at the company.

In a letter to House Financial Services Committee Chairman Barney Frank on Tuesday, Cuomo said the top 10 bonus recipients combined received $42 million, with the top recipient getting more than $6.4 million.

Cuomo has blamed the unit for the insurer's near collapse last year. The attorney general said 11 people who have left the company received retention bonuses of $1 million or more, with one person getting $4.6 million.

"Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG," Cuomo said in the letter. "Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing taxpayer bailout. Something is deeply wrong with this outcome."

On Monday, Cuomo subpoenaed AIG seeking details on who received retention bonuses in the financial products unit and copies of the contracts underlying the bonuses. In his letter, Cuomo said AIG has refused to provide the names of those who received bonuses.

Over the weekend, news surfaced that AIG had paid $165 million in retention bonuses to individuals in the financial products unit on Friday.

The $165 million is the latest installment of a retention program that is slated to pay the unit's employees about $450 million. AIG had previously paid out $55 million, and an additional $230 million is pending for 2009.

The bonuses have sparked outrage on Capitol Hill and among taxpayers.

On Tuesday, the White House said it is looking into "all remedies" to recoup the bonuses after President Barack Obama denounced the payouts on Monday.

"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama said Monday. "Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay."

Frank, D-Mass., told reporters in Washington on Tuesday that the U.S. government, which now controls an 80% equity stake in AIG, should assert its ownership of the insurer in order to block the retention payments. Frank said the government had a better chance of prevailing in court if it acted as an owner, rather than as a regulator intervening in the private sector.

Frank's committee is expected to hold a hearing on the AIG bonuses on Wednesday.

AIG has said it is contractually obligated to pay the bonuses and will make efforts to reduce the retention payments by at least 30% in 2009. The bonuses were negotiated in the first quarter of 2008 when the financial products business was expected to have a "significant ongoing role" at AIG, Chief Executive Edward Liddy said in a letter to Treasury Secretary Timothy Geithner on Saturday.

"We understand the Attorney General's concerns, are in ongoing contact with the Attorney General and will respond appropriately to the subpoena," AIG spokesman Mark Herr said in a statement. "In the meantime, the Financial Products unit continues to work diligently to unwind operations and has made significant progress in doing so."

The insurer has accepted more than $170 billion in U.S. government funding, and government officials have said they may have to pump more money into the insurer if the economy continues to worsen. Earlier this month, it reported a $ 61.7 billion fourth-quarter loss.

In his letter Tuesday, Cuomo said the contracts his office has reviewed contained a provision that required most individuals' bonuses to be 100% of their 2007 bonuses.

"Thus, in the spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before," Cuomo said. "My office has thus begun to closely examine the circumstances under which the plan was created."

Cuomo also said AIG was able to bargain with some of its financial products employees, with those employees taking salaries of $1 in 2009 in exchange for their retention bonus packages.

"The fact that AIG engaged in this negotiation flies in the face of AIG's assertion that it had no choice but to make these lavish multi-million dollar bonus payments," Cuomo said. "It appears that AIG had far more leverage than they now claim."

-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com

(Jessica Holzer and Henry J. Pulizzi contributed to this report.)