CEO Robert Benmosche says AIG
PHOTO: Getty Images
CEO Robert Benmosche says AIG's board has "fiduciary and legal obligations to the company and its shareholders to consider."

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US insurer AIG may sue the U.S. government over the terms of its 2008 bailout deal

AIG received the biggest of all the government bailouts during the crisis

The possible move has ignited fierce criticism after the controversial rescue of the then-failing insurer

(Financial Times) —  

AIG, the US insurer, which received the biggest of all the government bailouts during the financial crisis, may sue the US government over the terms of the deal.

The company’s board will on Wednesday consider joining a lawsuit launched in 2011 by Hank Greenberg, AIG’s former chief executive, which demands $25bn in compensation for the dilution inflicted on shareholders when the Federal Reserve Bank of New York took a 79.9 per cent stake in return for $182bn in loans and guarantees.

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The possible move, mentioned in court filings and first reported by The New York Times, has ignited fierce criticism four years after the deeply controversial rescue of the then-failing insurer.

“There is no merit to these allegations,” said a spokesman at the New York Fed. “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. The Federal Reserve’s actions with regard to AIG helped to restore financial stability in the United States during a period of intense volatility and vulnerability in the US economy.”

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The US Treasury and New York Fed are due to send representatives to the board meeting in an effort to persuade the company’s directors, led by chief executive Robert Benmosche, not to join the legal action.

Starr International, the vehicle controlled by the 87-year-old Mr Greenberg, represented by lawyers at Boies, Schiller & Flexner, will put the opposite case.

In a statement, Robert Benmosche, chief executive of AIG, said the company’s board had “fiduciary and legal obligations to the company and its shareholders to consider” the case. “Tomorrow’s board meeting is about listening to all of the parties involved and gaining a thorough understanding of the issues. We anticipate making a decision in the next several weeks.”

Elizabeth Warren, the Democratic senator and former head of a congressionally appointed panel overseeing the government’s crisis response, was among the critics on Tuesday.

“Taxpayers across this country saved AIG from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough,” Ms Warren said. “AIG should thank American taxpayers for their help, not bite the hand that fed them for helping them out in a crisis.”

The insurer’s plight stemmed from credit default swaps it had written to banks who wanted to insure themselves against losses on collateralised debt obligations. As the CDOs fell in value during the credit crunch, AIG was forced to post more cash collateral, threatening to tip the company into bankruptcy before the government intervened.

The case is before the Federal Court of Claims in Washington. An earlier, related case in the US District Court in New York was dismissed by a judge in November.