AIG mulls suit over bailout
But behind the scenes, the restored insurance company is weighing up whether to tell the US government agencies that rescued it during the financial crisis: thanks, but you cheated our shareholders.
The board of AIG is considering joining a $US25 billion shareholder lawsuit against the government, court records show.
The lawsuit does not argue that government help was not needed. It contends that the onerous nature of the rescue - the taking of what became a 92 per cent stake in the company, the deal's high interest rates and the funnelling of billions to the insurer's Wall Street clients - deprived shareholders of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for "public use without just compensation".
Maurice Greenberg, AIG's former chief executive, who remains a major investor in the company, filed the lawsuit in 2011 on behalf of fellow shareholders. He has since urged AIG to join the case, a move that could nudge the government into settlement talks.
The choice is not a simple one for the insurer. Its board members, most of whom joined after the bailout, owe a duty to shareholders to consider the lawsuit. If the board does not give careful consideration to the case, Mr Greenberg could challenge its decision to abstain.
Should Mr Greenberg snare a major settlement without AIG, the company could face additional lawsuits from other shareholders. Suing the government would not only placate its former chief but also put AIG in line for a potential payout.
Yet such a move would almost certainly be seen as an audacious display of ingratitude. The action would also threaten to inflame tensions in Washington, where the company has become a byword for excessive risk-taking on Wall Street.
Some officials are already upset with the company for entertaining the lawsuit, people briefed on the matter said. They noted that without the bailout, AIG shareholders would have fared far worse in bankruptcy.
Frequently Asked Questions about this Article…
AIG recently finished repaying a US$182 billion government bailout and is now weighing whether to join a US$25 billion shareholder lawsuit that argues the bailout’s terms unfairly harmed shareholders. The potential move has attracted attention because it could lead to settlement talks with the government and affect shareholder outcomes.
The lawsuit was filed in 2011 by Maurice Greenberg, AIG’s former chief executive and a major investor in the company. He has urged AIG’s board to join the case, which could strengthen pressure for a settlement.
The suit doesn’t say the bailout was unnecessary; it contends the rescue’s terms—such as the government taking what became a 92% stake, high interest rates, and funneling billions to some Wall Street clients—deprived shareholders of billions and violated the Fifth Amendment’s protections against government taking private property without just compensation.
Most board members joined after the bailout and must weigh their duty to act in shareholders’ best interests. If the board declines to join without careful consideration, Maurice Greenberg could challenge that decision, arguing the board failed its responsibilities.
If AIG joins, it could increase the chance of a settlement that provides a payout to shareholders. If it stays out and Greenberg secures a major settlement on his own, AIG could face additional lawsuits from other shareholders seeking similar relief.
Suing the government could be seen as ungrateful and might inflame tensions in Washington, where AIG is already viewed as a symbol of excessive risk-taking. Some officials are reportedly upset that the company is even entertaining the lawsuit.
No. The lawsuit does not claim the rescue was unnecessary; it challenges the rescue’s harsh terms and contends those terms unlawfully deprived shareholders of fair value.
Possible outcomes include prompting settlement talks with the government and a potential payout to shareholders, legal challenges if the board declines, or heightened political and reputational fallout. The article notes joining could nudge the government toward settlement but also risk public and political backlash.
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