AIG May Join Suit Against Federal Government Over ‘Unfair’ Bailout Terms

January 8, 2013

American International Group Inc., the insurer rescued by the U.S. government in 2008 with a bailout that ultimately totaled $182 billion, may join a lawsuit against the government alleging the terms of the deal were unfair.

The news prompted a swift reaction from one of AIG’s rescuers, with the Federal Reserve Bank of New York saying the insurer could have just as well chosen bankruptcy four years ago and wiped shareholders out entirely.

The move would be something of a shock development given that AIG just launched a high-profile TV ad campaign called “Thank you America,” in which it offers gratitude for the rescue, which was fully repaid with a profit last year.

At the same time, Chief Executive Bob Benmosche has complained that the company and its management have not gotten enough credit for avoiding a collapse, turning the business around and returning to profitability.

“If AIG enters this suit it would be the equivalent of a patient suing their doctor for saving their life,” said Mark Williams, a former Federal Reserve bank examiner who teaches in the finance department at Boston University.

“AIG needs to look at only itself as a company that recklessly engaged in excessive risk taking. Government action gave AIG a second life,” Williams said.

AIG confirmed on Tuesday that its board would meet Wednesday to discuss joining a lawsuit filed against the government by Hank Greenberg, the insurer’s former chief executive.

Greenberg, whose Starr International owned 12 percent of AIG before its near-collapse, has accused the Federal Reserve Bank of New York of using the rescue to bail out Wall Street banks at the expense of shareholders, and of being a “loan shark” by charging exorbitant interest on the initial loan.

A federal judge in Manhattan dismissed Greenberg’s suit against the New York Fed in November; a separate suit under different legal theories in the U.S. Court of Federal Claims is still pending.

“There is no merit to these allegations. AIG’s board of directors had an alternative choice to borrowing from the Federal Reserve and that choice was bankruptcy. Bankruptcy would have left all AIG shareholders with worthless stock,” a representative of the New York Fed said Tuesday.

A source familiar with the situation said lawyers for the New York Fed expect to attend the Wednesday board meeting to argue their side of the matter.

An AIG spokesman declined to comment beyond confirming that the board would meet. The deliberations were first reported by the New York Times.

The U.S. Treasury completed its final sale of AIG stock in mid-December, concluding the bailout with what Treasury called a positive return of $22.7 billion.

A Treasury spokesman declined to comment.

AIG shares fell 0.5 percent to $35.74 in early trade. After losing half its value in 2011, the stock rose more than 52 percent in 2012, tripling the gains of the broader S&P insurance index.

 

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Latest Comments

  • January 15, 2013 at 10:11 am
    Agent says:
    There are a lot of businesses out there who have heard of AIG and their troubles. Many have told me not to propose anything they have to offer. AIG takes arrogance to a new ... read more
  • January 14, 2013 at 2:08 pm
    Annoyed says:
    I presented a quote just last week. Unfortunately, AIG was one, of three, that offered a quote. I couldn't believe it and to do my job and offer ALL opportunities (consideri... read more
  • January 14, 2013 at 11:42 am
    An actuary says:
    Plenty of insurers participate on AIG's D&O tower.
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