Newspaper article International Herald Tribune

After Handout, A.I.G. Considers Biting the Hand

Newspaper article International Herald Tribune

After Handout, A.I.G. Considers Biting the Hand

Article excerpt

The board of A.I.G. will meet Wednesday to consider joining a $25 billion shareholder lawsuit against the government that bailed it out during the financial crisis.

Fresh from paying back a $182 billion bailout, the insurer American International Group has been running an advertising campaign with the tagline "Thank you America."

Behind the scenes, the restored insurance company is weighing whether to add to its message for the U.S. government agencies that rescued it, along the lines of "Thanks, but you cheated our shareholders."

The board of A.I.G. will meet Wednesday to consider joining a $25 billion shareholder lawsuit against the government, court records show.

The lawsuit does not argue it did not need government: It contends that the onerous nature of the rescue -- the taking of what became a 92 percent stake in the company, the deal's high interest rates and the funneling of billions to the insurer's Wall Street clients -- deprived shareholders of tens of billions of dollars and violated the Fifth Amendment of the Constitution, which prohibits the taking of private property for "public use, without just compensation."

Maurice R. Greenberg, the former chief executive of A.I.G. who remains a major investor in the company, filed the lawsuit in 2011 on behalf of fellow shareholders. He has since urged A.I.G. to join the case, which 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 A.I.G., the company could face additional lawsuits from other shareholders. Suing the government would not only placate the 87-year-old former chief but also put A.I.G. in line for a potential payout.

Yet such a decision would almost certainly be widely 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 government officials are already upset with the company for even seriously entertaining the lawsuit, according to people briefed on the matter. The people, who spoke on the condition of anonymity, noted that without the bailout, A.I.G. shareholders would have fared far worse in bankruptcy.

"On the one hand, from a corporate governance perspective, it appears they're being extra cautious and careful," said Frank Partnoy, a former banker who is now a professor of law and finance at the University of San Diego School of Law. "On the other hand, it's a slap in the face to the taxpayer and the government."

For its part, A.I.G. has seized on the significance and complexity of the case, which is filed in New York and Washington. A U.S District Court judge in New York dismissed the case, while the Washington court allowed it to proceed.

"The A.I.G. board of directors takes its fiduciary duties and business judgment responsibilities seriously," said Jon Diat, an A.I.G. spokesman.

On Wednesday, the case will command the spotlight for several hours at A.I.G.'s New York headquarters.

Mr. Greenberg's company, Starr International, will begin with a 45-minute presentation to the board, according to people briefed on the matter. Mr. Greenberg is expected to attend, they added.

It will be an unusual homecoming of sorts for Mr. Greenberg, who ran A.I.G. for nearly four decades until resigning amid investigations into an accounting scandal in 2005. For some years after his abrupt departure, there was bitterness and litigation between the company and its former chief.

After the Starr briefing, lawyers for the Treasury Department and the Federal Reserve Bank of New York -- the architects of the bailout and defendants in the cases -- will make their presentations. …

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