Bailed out AIG pays bonuses

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AIG is paying out the executive bonuses to meet a Sunday deadline, but the troubled insurance giant has agreed to US administration requests to restrain future payments.

The Treasury Department determined that the government did not have the legal authority to block the current payments by the company.

AIG declared earlier this month that it had suffered a loss of $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

Treasury Secretary Timothy Geithner has asked that the company scale back future bonus payments where legally possible, and described the payouts as unacceptable.

In a letter to Mr Geithner dated Saturday, AIG chairman Edward Liddy informed the Treasury that outside lawyers had told the company it had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.

Mr Liddy said in his letter that "quite frankly, AIG's hands are tied", although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.

Mr Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial difficulties and was forced to obtain a government bailout last autumn.

The large bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps - risky contracts that caused massive losses for the insurer.

A white paper prepared by the company says that AIG is contractually obligated to pay a total of about $165 million of previously awarded "retention pay" to employees in this unit by March 15. The document says that another $55 million in retention pay has already been distributed to about 400 AIG Financial Products employees.