AIG puts crisis-hit unit into bankruptcy to limit bonus pay outs

AIG is trying to limit bonus payments to former executives by placing into bankruptcy the unit that triggered one of the biggest bailouts of the 2008 financial crisis.

The US 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 US government’s $182bn bailout 14 years ago.

Since then, AIG has been battling a group of former AIG FP executives in the US and UK, who claim they are owed millions of dollars in bonuses.

In its filing, AIG said that the proposed reorganisation of AIG FP would limit the overall bonus pool to $1mn for 46 executives.

“The terms of the deferred compensation plans provide that upon a bankruptcy filing by FP, any financial obligation of FP under the deferred compensation plans is subordinate to all other liabilities of FP,” the company said.

“Pursuant to 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 $1mn.”

Shortly after the crisis-era bailout, AIG faced an outcry in the US by continuing to pay bonuses to some FP staff. London-based executives brought a case in English courts in 2014.

Their claim sought more than $100mn in bonuses and it was estimated that a further $800mn could be claimed by former US employees. The London-based executives’ case was successful at the High Court, but AIG ultimately won on appeal.

The insurer said in the filing that it had resolved all lawsuits except for one pending in a Connecticut state court, which was brought in 2019 and was “fundamentally identical” to the English case.

AIG is the largest remaining creditor to Connecticut-based FP, which has no employees or material operations. The unit still owes significant amounts to the wider insurance group in the form of intercompany loans that were funded by the government bailout, which was ultimately recouped by the taxpayer.

The bankruptcy filing would have “no net impact” on AIG’s financial statements, the insurer said, given that the unit and the wider group’s disastrous bets were recognised in its 2008 financial statements.

Since then, AIG has been engaged in an on-off restructuring, selling assets in areas such as aircraft leasing and consumer finance. In September, it floated its life insurance and asset management business, rebranded as Corebridge Financial, raising $1.7bn.