AIG board weighs suing US over bailout

Jan 9, 3:03 AM EST — NEW YORK (AP) — AIG is con­sid­er­ing Wednes­day whether the com­pany should join a law­suit against the gov­ern­ment that spent $182 bil­lion to save it from collapse.

Amer­i­can Inter­na­tional Group Inc. said its board of direc­tors will weigh whether to take part in a share­holder law­suit against the U.S. over the government’s $182 bil­lion bailout of the New York-based insurer.

If AIG decides to join the com­plaint, which seeks $25 bil­lion in dam­ages, it would pit the com­pany against the gov­ern­ment that in 2008 kept it from buck­ling under the weight huge losses on mortgage-backed secu­ri­ties and other toxic assets.

AIG said that after Wednesday’s meet­ing, its direc­tors should have a deci­sion by the end of the month.

Starr Inter­na­tional Co. Inc., the invest­ment firm of for­mer AIG CEO Mau­rice Green­berg, filed the law­suit in Novem­ber 2011 on behalf of the firm and AIG shareholders.

The com­plaint, filed in the U.S. Court of Fed­eral Claims and the U.S. Dis­trict Court for the South­ern Dis­trict of New York, says that the gov­ern­ment didn’t pro­vide share­hold­ers fair com­pen­sa­tion when it took a nearly 80 per­cent stake in the insurer as part of the bailout. In doing so, the gov­ern­ment vio­lated the Con­sti­tu­tion, Starr claims.

AIG said that, by law, its board must con­sider three options: take over the law­suit and pur­sue the claims on its own; attempt to pre­vent the claims from being pur­sued by Starr; or, allow Starr to con­tinue to pur­sue the com­plaint on AIG’s behalf.

The insurer noted that, if it decides not to let Starr pur­sue its claims on the company’s behalf, Starr would likely chal­lenge the move. Under that sce­nario, if Starr won the case, AIG would not receive any dam­ages or por­tion of a poten­tial settlement.

The Court of Fed­eral Claims denied a request by the U.S. to dis­miss the law­suit, which means the case will go for­ward regard­less of AIG’s participation.

The gov­ern­ment came to the res­cue of AIG in Sep­tem­ber 2008, at the depths of the finan­cial melt­down. The New York com­pany did busi­ness with hun­dreds of firms around the world, and offi­cials feared its col­lapse would wreck the finan­cial system.

All told, AIG’s bailout was the largest of the Wall Street res­cue packages.

Since the finan­cial melt­down, AIG has under­gone a restruc­tur­ing that has cut its size nearly in half. Its aim is to focus the com­pany on its core insur­ance operations.

In 2010, the com­pany spun off Asian life insurer AIA Group in Hong Kong’s biggest ever ini­tial pub­lic offer­ing to raise $20 bil­lion, which was used to pay bailout debt.

In Novem­ber, AIG reported a third-quarter profit of nearly $2 bil­lion thanks to strength in its insur­ance oper­a­tions and invest­ment returns. In the same period a year ear­lier it lost $4 billion.

The Trea­sury Depart­ment announced last month that it sold all of its remain­ing shares of AIG, end­ing up with $22.7 bil­lion more than it fun­neled to the com­pany dur­ing the height of the finan­cial crisis.

Shares of AIG ended reg­u­lar trad­ing down 28 cents at $35.65. Over the last 12 months, how­ever, the stock is up more than 50 percent.

Posted by Randa Wagner on Jan 9 2013. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.