Senior House Republicans Call for Audit of AIG Trust System

The ranking Republicans on two key House committees -- the Financial Services Committee and Oversight and Government Reform -- have requested the special inspector general of the Troubled Asset Relief Program audit the way American International Group's public stake is being managed.

Rep. Spencer Bachus, chief Republican on the financial-services panel, and Rep. Darrell Issa, his counterpart on the oversight panel, have sent letters to Treasury Secretary Tim Geithner and TARP's Special Inspector General Neil Barofsky questioning the AIG Credit Facility Trust Agreement. The trust was formed to manage what amounts to an 80% public-owned portion of the insurance giant.

Specifically, the two lawmakers question "the degree to which the public can be confident in their ability to hold the trustees accountable," according to the letters.

The letter to Geithner claims "a lack of transparency and accountability in the delegation of authority to an independent trust," managed by three trustees and "apparently accountable to no one."

The Federal Reserve created the AIG trust in January to oversee the U.S. Treasury's ownership stake, obtained as part of the federal rescue that has kept the insurer solvent since its near-collapse almost a year ago. That stake has grown to $182.5 billion in loans and other assistance (BestWire, April 29, 2009). A similar system has been suggested for the government-owned stake of Citigroup.

AIG has drawn down about $42 billion from aid from the TARP, represented as equity in the company's last quarterly report, not debt. AIG has about $28.7 billion of TARP funds remaining. According to the Congressional Oversight Panel, AIG has yet to repay TARP fund principal and it has stopped making dividend payments as well. Also, AIG reported about $44.8 billion in liabilities to the Federal Reserve Bank of New York in the second quarter. The amount was about $47.4 billion in the first quarter. Currently, the Fed has pledged $60 billion.

The lawmakers' letters concerning AIG (NYSE: AIG) point out the Obama administration's promises for transparency in the TARP process. "Once again, the American people are not getting what they have been promised," they said.

The correspondence requests answers to several questions about the formation and makeup of the AIG trust, including an explanation from Geithner about why he -- as then-president of the Federal Reserve Bank of New York -- sided with a bailout rather than bankruptcy for AIG.

Kristine Belisle, spokeswoman for Barofsky's office, confirmed the letter has been received. "We are reviewing the request at this time," she said.

Most AIG insurance companies have current Best's Financial Strength Ratings of A (Excellent) with a negative outlook.