The crisis-stricken insurer AIG has infuriated the Obama administration by paying "retention" bonuses of $450m (£322m) to staff at the London-run financial products division that crippled the company with vast losses on toxic derivatives.
Senior White House officials yesterday condemned the payments by the struggling company which has received more than $150bn of US government aid.
Newly released figures revealed that billions of dollars of public money used to prop up AIG have flowed to European banks which were trading partners with the insurer ? including Barclays, HSBC and Royal Bank of Scotland.
AIG's problems are largely down to disastrous contracts to protect banks against bad losses which were written by AIG Financial Products ? a business largely run from offices in Mayfair.
AIG is handing out money to 400 executives from this unit under a loyalty programme drawn up before the scale of its difficulties became clear.
The payouts are over the course of several years, with a tranche of $165m due this week. In addition, AIG is providing $121m to 6,400 employees across the rest of its sprawling global empire.
The US treasury secretary, Timothy Geithner, tried to block the payments last week. In a phone call, he is said to have "berated" AIG's chief executive Ed Liddy over the scale and timing of the handouts. While accepting the awards were unpalatable, Liddy responded that they were contractual requirements and AIG could not find a legal way to escape them.
"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," said Liddy in a letter to the US treasury, which owns 80% of AIG.
Larry Summers, director of Barack Obama's national economic council, told ABC television that the treasury had done its best to cut the payments, forcing concessions including a future salary cut to $1 for the division's top 25 staff. "There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous," said Summers. But he added: "We are a country of law. There are contracts. The government cannot just abrogate contracts."
Meanwhile, AIG revealed last night that since receiving a government bailout in September, it has been obliged to pay more than $90bn to a list of clients and counterparties dominated by European banks. The institutions were on the other side of credit default swaps and other instruments provided by AIG to hedge against liabilities which exploded once the credit crunch set in.
Goldman Sachs was the top beneficiary, receiving $12.9bn. But among the other top names are Société Générale and Deutsche Bank, both of which got more than $11bn. Barclays has received $8.5bn, HSBC has had $3.5bn and Royal Bank of Scotland has been paid $700m.
The spectre of US taxpayers' money flowing to European banks is unlikely to play well with the American public.
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