AIG Bankrupts Crisis-Hit Unit to Limit Bonus Payouts
AIG is trying to limit bonus payments to former executives by bankrupting the unit that triggered one of the biggest bailouts of the 2008 financial crisis.
The U.S. insurer said on Wednesday it had put AIG Financial Products into Chapter 11 bankruptcy. The division’s risky bets on credit default swaps were at the heart of the government’s $182 billion bailout American 14 years ago.
Since, AIG is fighting a group of former AIG FP executives in the US and UK, who claim they are owed millions of dollars in bonuses.
In his file, AIG said the proposed reorganization of AIG FP would limit the overall bonus pool to $1 million for 46 executives.
“The terms of the deferred compensation plans provide that in the event of a bankruptcy filing by FP, any financial obligations of FP under the deferred compensation plans are subordinate to all other liabilities of FP,” the company said.
“Under the terms of the plan of reorganization, the only funds available to the 46 former FP executives to extinguish their claims would be an equal share in a limited pool of $1 million.”
Shortly after the crisis bailout, AIG faced an uproar in the United States by continuing to pay bonuses to some FP employees. London-based executives filed suit in English courts in 2014.
Their claim sought over $100 million in premiums and it was estimated that another $800 million could be claimed by former US employees. The London-based executives’ case was successful in the High Court, but AIG eventually won on appeal.
The insurer said in the filing that it had resolved all lawsuits except for one pending in Connecticut state court, which was filed in 2019 and was “fundamentally identical” to the English affair.
AIG is the largest remaining creditor of Connecticut-based FP, which has no employees or physical operations. The unit still owes significant sums to the wider insurance group in the form of inter-company loans that were funded by the government bailout, which was ultimately recovered by the taxpayer.
The bankruptcy filing would have ‘no net impact’ on AIG’s financials, the insurer said, given that the wider group’s unity and disastrous bets were recognized in its 2008 financials .
Since then, AIG has engaged in intermittent restructuring, selling off assets in areas such as aircraft leasing and consumer finance. In September, it launched its life insurance and asset management business, renamed Corebridge Financialraising $1.7 billion.