AIG Board Meets to Discuss Possible Litigation against U.S. Government

By Stevie Duffin Updated on 1/9/2013

By Daniel Duffield

On Wednesday, the board of the American International Group Inc. convened to discuss the joining of a lawsuit against the U.S. government regarding the alleged unfair terms that were imposed during the company’s bailout, a meeting which has been defended by the company as a responsibility but one that has stirred up the ire of the public and brought about a fair amount of criticism.

AIG is considering whether to take part in litigation by AIG former chief executive Hank Greenberg and his company Starr International, which owned 12% of the company prior to the federal bailout.

Essentially, Greenberg claims that the bailout was unjustly detrimental to shareholders and that the Federal Reserve Bank of New York levied an excessive interest rate on the initial bailout loan. As a result, Greenberg is seeking billions of dollars in compensation.

The concept of AIG suing the government for the bailout has drawn much criticism from the public, which expressed its incense on the Internet, with AIG mentions on Twitter increasing more than fifty fold on Tuesday, according to Topsy Analytics.

Angry responses have been plentiful, with some more mature than others (see Austan Goolsbee’s Twitter tirade). Comedian Andy Borowitz wrote a sarcastic letter from the company to taxpayers, pleading for additional bailout funds to finance the expense of the litigation. Many more explicit comments were directed toward Chief Executive Robert Benmosche.

And these comments were relatively tame compared to some of the more caustic criticisms. For instance, the New York Daily News posted an editorial cartoon depicting a lifeguard saving a drowning man with “AIG” shown on his stomach; when the lifeguard asks how the man feels, the victim responds, “like suing you.”

This bitterness toward AIG resembles that of late 2008 and early 2009, during which time the public grew furious after AIG employees, whose reckless practices had necessitated the bailout, received outrageous post-bailout bonuses (totaling $100 million), resulting in threats to AIG employees and their families.

Congressmen even reacted with disdain, as a group led by Vermont Democrat Peter Welch sent a letter to AIG’s chairman on Tuesday, warning, “Don’t do it. Don’t even think about it,” while other members of Congress imposed the threat of hearings.

Although AIG responded on Twitter in an attempt to justify its actions as a legal obligation to consider this action, such defense was largely ignored.

The board meeting started Wednesday morning, although a decision is not expected to be announced until the end of January.

While securities professionals reached general agreement that AIG’s board was responsible for at the very least discussing this option, they also conveyed that such a lawsuit would be more problem than profit.

According to James Cox, professor of corporate and securities law at Duke University School of Law, the state of AIG in a mode of recovery would suffer from the lawsuit much more than it would gain.

In September 2008, the government came to the rescue of AIG on the brink of bankruptcy and provided bailout funds which totaled more than $182 billion. After a recapitalization agreement that was settled in early 2011, the U.S. Treasury owned 92% of AIG.

Treasury finalized the sale of the last government stake in AIG in mid-December. All in all, the government stated earnings of $22.7 billion through the bailout.

AIG shares increased 0.4% to $35.81 during the morning trade. The stock declined half of its value in 2011 but then grew more than 50% during 2012, and has since showed consistent productivity.