Today, the House Oversight and Government Reform Committee held a hearing entitled “AIG: Where is the Taxpayer Money Going?” The hearing consisted of two panels:
- Edward M. Liddy, Chairman and CEO, American International Group, Inc.
Jill M. Considine, Trustee, AIG Credit Facility Trust.
Chester B. Feldberg, Trustee, AIG Credit Facility Trust
Douglas L. Foshee, Trustee, AIG Credit Facility Trust
J.W. Verret, Professor, George Mason University School of Law
Committee Chairman Edolphus Towns (D-NY) set the tenor of the meeting in his opening remarks by questioning the secrecy surrounding AIG’s restructuring and the strategy of liquidations and asset sales in current market conditions. Specifically, he and other members of the committee requested that the terms of AIG’s long-term restructuring plan, widely reported as going under the name “Project Destiny,” be disclosed to the public, citing a letter they had sent to AIG in response to press accounts of the plan. In response, Mr. Liddy initially agreed to provide only the general gist of plan to the committee, asserting that disclosure of plan details would give an advantage to AIG’s competitors. He stated that AIG does plan to sell 20% of its casualty and property business in an initial public offering, while selling its foreign life insurance units to the government, but that the plan is “explicitly designed to avoid having to divest AIG assets at fire-sale prices.” Taking those considerations into account, he stated that AIG would likely need “three to five years” to complete its restructuring and repay taxpayers. After further pressure, Mr. Liddy did agree to provide the details to the committee under a confidentiality agreement similar to the one between AIG and Treasury.
The three trustees of the AIG Credit Facility Trust, who presented both individual testimony and a joint statement, gave AIG’s performance mixed reviews. The trustees expressed frustration that they had only begun to work under their mandate from the Federal Reserve on March 3, as it was not until then that AIG transferred to the government the shares representing the 77.9% ownership stake. Acknowledging that “we are in uncharted waters” and have “no history or precedent to which we can look for guidance,” they explained the limits on their mandate, which is limited to “exercising the voting rights of the shares held in the Trust in the best interests of the U.S. Treasury and with a view towards maximizing the value of the AIG stock held by the Trust.” Although they have not involved themselves in the day-to-day activities of AIG or its board, they reported that “we are actively seeking new members of the board who could add important skills and perspective.” They also acknowledged “Congressional and public concern over bonuses paid to employees of recipients of federal funds in the current environment,” and described their recent letter to Mr. Liddy encouraging AIG to “undertake a broad review of the compensation programs currently in place throughout AIG” and implement compensation programs that, among other criteria, are “performance-based,” “designed to reward long-term, sustainable value creation” and “to encourage appropriate risk-taking,” and “include clear and consistent metrics to align employees interests with those of shareholders.” In response to demands by the committee members that the minutes of the weekly trustee discussions be disclosed to Congress, the trustees demurred, stating that the minutes were the Federal Reserve’s property.
Professor Verret cited three concerns he had with the structure of the trust arrangement set up by the Federal Reserve Bank of New York to manage the government’s investment in AIG. Specifically, he expressed concerns about three provisions of the trust agreement:
- A provision that requires the trustees to manage the trust in the best interest of the Treasury Department rather than the U.S. taxpayer.
- A provision that, in his view, offers generous protection against liability for the trustees.
- A provision that permits the trustees to invest personally in investment opportunities that may otherwise belong to AIG.
While conceding that it was not currently possible to adjust the provisions of the AIG Credit Facility Trust, Professor Verret argued that future trust arrangements be more aligned with the interests of U.S. taxpayers.