American International Group Inc (AIG) said on Tuesday its board of directors will weigh up whether to take part in a shareholder lawsuit against the US government over its US$182 billion bailout of the insurer.
If AIG decides to join the complaint, which seeks US$25 billion in damages, it would pit the company against the US government, which rescued it in 2008 from collapsing under the weight of huge losses on mortgage-backed securities and other toxic assets AIG said that its directors would take up the matter yesterday and expects they will have reached a decision by the end of the month.
Starr International Co Inc, the investment firm of former AIG chief executive office Maurice Greenberg, filed the lawsuit in November 2011 on behalf of the firm and AIG shareholders.
The complaint, filed in the US Court of Federal Claims and the US District Court for the Southern District of New York, asserts that the government did not provide shareholders fair compensation when it took a nearly 80 percent stake in the insurer as part of its bailout.
As a result, 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 firm said that, should it elect not to let Starr pursue its claims on the company’s behalf, Starr would likely challenge the move.
In such a scenario, should Starr prevail in the case, AIG would not receive any damages or portion of a potential settlement.
The US Court of Federal Claims denied a request by the government 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-based company did business with hundreds of firms around the world, and officials feared its collapse would wreck the financial system.
AIG’s bailout was the largest of the Wall Street rescue packages.
Since the financial meltdown, AIG has undergone a significant restructuring which has cut the size of the company nearly in half aimed at focusing 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 US$20 billion, which was used to pay bailout debt.
In November last year, AIG posted a third-quarter profit of nearly US$2 billion thanks to strength in its insurance operations and investment returns. In the same period a year earlier it lost US$4 billion.
The US Department of the Treasury announced last month that it had sold all of its remaining shares in AIG, ending up with US$22.7 billion more than it funneled to the company during the height of the financial crisis.
Shares in AIG ended regular trading down US$0.28 cents at US$35.65. However, over the last 12 months the stock is up more than 50 percent.