AIG changes story on state payments

AIG, led by CEO Ed Liddy, now says states got less money than initially estimated in last fall's bailout.

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NEW YORK (Fortune) -- It seems cash-strapped states didn't make out quite as well in the AIG bailout as the troubled insurer initially claimed.

AIG (AIG, Fortune 500) now says that municipalities holding guaranteed investment contracts received $9.5 billion in payments from the company last fall.

That's $2.6 billion less than the estimate AIG provided March 15. The new figures appear in a revised document on AIG's Web site.

A spokeswoman said the company published the earlier, higher number mistakenly, due to an "administrative error."

The company, which is 80% owned by the federal government, had provided that estimate in response to pressure from legislators up in arms about the soaring cost of federal support for the company.

Lawmakers were demanding answers about who was ultimately pocketing all those checks from the Federal Reserve and Treasury Department. AIG received an $85 billion loan from the Fed in September. The cost of the bailout has since more than doubled.

Insurance companies sell guaranteed investment agreements, or GIAs, to states, as well as to organizations like hospitals and universities, that issue bonds to raise money but don't want to use the cash all at once.

Among the states whose initial take appears to have been overstated is Ohio, which was listed in the original document as having gotten $0.49 billion, or $490 million. The updated disclosure puts that total at $0.4 billion. Depending on how the figures were rounded, the state's indicated payout could have dropped by between 8% and 29%.

The GIA figure wasn't the only number that changed in the revised AIG accounting. The share of federal funds attributed to paying off maturing debt and "other" uses rose to $15.2 billion, from $12.5 billion in the earlier estimate.

A spokeswoman said the company made the change last week after it learned an administrative error had been made in calculating the sums that had been paid to the states.

"The basic answer is that the money got put in the wrong bucket," she said.

That admission handed new ammunition to congressional critics of the company.

"I am not at all surprised to see AIG backtracking on another multibillion-dollar figure that was announced to the media," said Rep. Elijah Cummings, D-Md. "For months, this company -- and [CEO] Edward Liddy himself -- has consistently changed the numbers when discussing compensation policies with me. I can't decide if AIG needs a new accounting department, a new PR department, or both."

Other estimates were unchanged. The total funds devoted to support of the company's troubled financial products division was $52 billion. Tabulations of the funds that ended up in the hands of banks that traded with AIG didn't change either.

Questions about AIG's bookkeeping aren't new. In 2005, the company restated its earnings for five years, wiping out $4 billion in profits that had been reported while its longtime leader, Hank Greenberg, was still CEO.

Last February, the company admitted it had a "material weakness" in how it valued its credit default swap portfolio - the derivatives holdings whose unraveling left the company teetering at the edge of bankruptcy last September before the government stepped in to save AIG.

The company provided the first breakdown of how bailout funds were used after Congress demanded to know which Wall Street firms were benefiting from the company's taxpayer-funded rescue.

In response, AIG produced a document on March 15 that outlined how direct taxpayer support was used at its AIG Financial Products unit and in the unwinding of its securities lending business.

The financial products operation got the company into trouble last fall, when a downgrade of AIG forced it to come up with more cash to cover the financial products group's promises to cover banks' possible losses on certain debt pools.

It was that cash squeeze that led policymakers led by the Federal Reserve Bank of New York to make an $85 billion emergency loan to AIG.

Problems at the securities lending business led to an additional $38 billion loan from the New York Fed later that fall. AIG has since received two additional rounds of taxpayer support, raising the total federal funding of the AIG rescue to $182 billion.

Though members of Congress expressed some exasperation earlier this month over the slow pace of AIG's disclosure of its trading partners, the issue has since been dwarfed by the outrage over the payment of $165 million of retention bonuses to staffers at the financial products group -- some of whom had already left the company when the checks went out.

In the past week, legislators have passed measures slapping taxes as high as 90% on the bonuses, and New York Attorney General Andrew Cuomo has said he hopes to recoup half the money. Three-quarters of the top bonus recipients have agreed to return the money, Cuomo said.