US Geithner: Bank fee can recoup AIG bonuses

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US Treasury Secretary Timothy Geithner on Wednesday said insurer AIG's contracts to pay hundreds of millions of dollars in bonuses were "outrageous" and appealed to Congress to help recoup payments.

Geithner said Congress could help recover the "deeply irresponsible" bonuses by passing an Obama administration proposal to levy fees on large financial firms.

American International Group Inc on Wednesday was expected to pay about USD100 million in bonuses to employees of its Financial Products unit, which was responsible for making bad bets on credit default swaps that brought the insurance giant to the brink of collapse.

AIG is honoring the bonus contracts as the White House tries to recoup a USD180 billion bailout which averted the insurers almost certain bankruptcy amid the financial crisis.

"Those contracts were outrageous. They should never have been permitted," Geithner said in testimony to the US House of Representatives Ways and Means Committee.

Obama has proposed a fee on the largest financial companies to collect around USD90 billion over 10 years to recoup taxpayer losses resulting from financial bailouts.

The White House has shifted to a more aggressive stance on Wall Street since the Democrats lost a Senate seat in a special election in Massachusetts in January. The election highlighted voter resentment against big banks and big bonuses in the wake of massive bailouts during the financial crisis.

AIG is making the bonus payment more than a month ahead of schedule to employees that agreed to accept less than they were promised two years ago in retention contracts. AIG said on Tuesday it achieved a reduction of about USD20 million from about USD195 million in bonus payment obligations -- short of a USD26 million reduction target.

That leaves about USD75 million in AIG bonus payments still to come this year.

Geithner sought to channel ongoing outrage over the AIG bailout and bonuses into legislative action for financial reforms and the bank fee.

"Now, if you join with us in passing this proposed fee on our largest financial institutions, then you'll be able to say, as we do, that the American taxpayer will not pay a penny for what happened at AIG," Geithner said.