AIG offshoots keen to put saga behind them

No one at AIA is keen to say it on the record, but privately staff agree they can't wait to distance themselves from their United States-based parent, AIG.

In March AIG came under fire from US lawmakers for paying US$165 million ($250 million) in retention bonuses to employees of the Financial Products unit blamed for the insurer's near-collapse.

AIG New Zealand chief executive Matt Harris acknowledged this week the issue of bonus payments had been particularly hard for some Kiwi clients to swallow.

"It's no secret that being a subsidiary of the AIG business created challenges and reputational issues as problems became clear," he said.

Harris told the Business Herald the company had lost some clients over the issue.

But most had remained loyal and supportive, he said.

"Most understood in reality there has been satisfactory regulations in place."

AIG chief executive Edward Liddy - who works for US$1 a year - told Congress in March that while the awards to Financial Products employees were "distasteful", he needed to keep staff to unwind trades and prevent a "systemic shock" to the economy.

The company appears to have learned from the experience.

According to a US senator, it withheld a further US$2.4 million in executive bonuses scheduled to be paid this month, as part of a separate US$9.6 million pool for some of its top 50 senior partners.

But some things don't change on Wall St. The possibility of AIG spinning off some of its divisions to pay back US taxpayers is already proving lucrative for investment banks.

Morgan Stanley stands to reap tens of millions of dollars for advising the Federal Reserve on dismantling AIG.

In addition to an initial US$4 million payment and US$2.5 million a quarter, the bank will earn percentage fees if AIG sells any of its 11 businesses.

In the case of AIA, it has been estimated Morgan Stanley could expect to earn something like US$72 million for its share of underwriting an IPO. Deutsche Bank has been selected as the other global co-ordinator.

"The Fed will get in trouble politically for this because the very people seen to be responsible for the mess are getting paid to fix it," said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore.

The fees to Morgan Stanley are in addition to payments that Blackstone Group is earning as adviser to AIG.

Investment banks including UBS and JPMorgan Chase are also being paid to handle auctions of individual units.

Another beneficiary of AIG's dismantling is Ernst & Young, which could earn as much as US$60 million advising the New York Fed.

The accounting firm is billing at discounted rates, including US$775 per hour for work done by partners or executive directors, documents released by the Fed show.

Ernst & Young was also hired by the Fed for advice on Bear Stearns, purchased by JPMorgan Chase last year. The firm will reap as much as US$6 million for that assignment.

Meanwhile, AIG has said it will continue its legal case against Hank Greenberg and six other former AIG executives, after a federal jury decided this month they were not liable for taking US$4.3 billion of the firm's shares.

The executives are alleged to have looted the firm after Greenberg's ousting in 2005.

- BLOOMBERG, Staff reporters