The Washington Post
For some people at AIG, the insurance giant rescued last month with an $85 billion federal bailout, the good times keep rolling.
Joseph Cassano, the financial products manager whose complex investments led to‘s near collapse, is receiving $1 million a month in consulting fees.
Former chief executive Martin J. Sullivan, whose three-year tenure coincided with much of the company’s ill-fated risk-taking, is receiving a $5 million performance bonus.
And just last week, about 70 of the company’s top performers were rewarded with a week-long stay at the luxury St. Regis Resort in Monarch Beach, Calif., where they ran up a tab of $440,000.
At a House committee hearing yesterday, Rep. Henry A. Waxman (D-Calif.) showed a photograph of the resort, which overlooks the Pacific Ocean, and reported expenses for AIG personnel including $200,000 for rooms, $150,000 for meals and $23,000 for the spa.
“Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation,” Waxman said in kicking off an angry hearing of the House Committee on Oversight and Government Reform. “We will ask whether any of this makes sense.”
“They were getting their manicures, their pedicures, massages, their facials while the American people were paying their bills,” thundered Rep. Elijah E. Cummings (D-Md.).
The gathering was planned before the bailout as a reward for life insurance agents, a company spokesman said, and fewer than 10 AIG executives were present.
The hearing promised and delivered strident condemnations of the two AIG executives the committee had invited to testify. Sullivan served as chief executive from 2005 to 2008; Robert B. Willumstad served as chief executive from June until September, and before that was chairman of the board.
“Shame on you, Mr. Sullivan,” said Rep. Jackie Speier (D-Calif.), noting that Sullivan was not giving up any of his $5 million performance bonus.
Over and over, the committee members vented outrage at having the federal government bail out the company, referring frequently to their angry constituents.
But neither Sullivan nor Willumstad acknowledged making any mistakes.
“Looking back on my time as CEO, I don’t believe AIG could have done anything differently,” Willumstad said.
Sullivan blamed “a global financial tsunami” and the “mark-to-market” accounting rules, which require businesses to value assets at market value, even if no sale is imminent.
“I have spent my entire adult life in service to AIG, and I am heartbroken at what has happened,” he told the committee.
The committee members, barely concealing their frustration, seemed stunned by the duo’s refusal to find fault with their own performances.
“Don’t you think the management has some responsibility for what went on there?” Rep. John F. Tierney (D-Mass.) said at one point, his voice incredulous.
Sullivan responded that when they learned there was trouble with their investments, they put controls in place.
Tierney then questioned whether, at their compensation levels, the manager should have been “ahead of the curve” on such troubles.
“This is a fundamental failure of management,” Tierney said, exasperated.
The executives sat stone faced.
The House committee, which took on executive compensation at bankrupt Wall Street firmon Monday, has received “tens of thousands” of pages of documents from AIG, Waxman said.
Those documents show that AIG executives may have played a more significant role in the company’s collapse than either of the two executives let on, Waxman said.
On Dec. 5, 2007, Sullivan told investors “we are confident in our marks and the reasonableness of our valuation methods.”
But just a week before,, AIG’s auditor, had warned Sullivan that the company “could have a material weakness relating to these areas,” according to minutes from the company’s audit committee.
Moreover, as early as March federal regulators blamed lax management.
“We are concerned that the corporate oversight of. . . lacks critical elements of independence, transparency and granularity,” the Office of Thrift Supervision wrote to the company on March 10.
Just as frustrating to the committee members, Sullivan and Cassano seemed to have been rewarded for their performance, even though the company plunged under their stewardship.
AIG lost more than $5 billion in the last quarter of 2007 because of its risky financial products division, Waxman said.
Yet in March 2008 when the company’s compensation committee met to award bonuses, Sullivan urged the committee to ignore those losses, which should have slashed bonuses.
But the board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of more than $5 million.
The board also approved a new contract for Sullivan that gave him a golden parachute of $15 million, Waxman said.
As for Cassano, the executive in charge of the company’s troubled financial products division, he received more than $280 million over the past eight years. Even after he was terminated in February as his investments turned sour, the company allowed him to keep as much as $34 million in unvested bonuses and put him on a $1 million-a-month retainer.
He continues to receive $1 million a month, Waxman said.
Asked why they didn’t fire Cassano, Sullivan said they needed to “retain the 20-year knowledge of the transactions.”
“What would he have had to have done for you to fire him?” Waxman said.