AIG May Sue the Government for Charging Too Much to Save It

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Robert Benmosche, CEO of AIG (Bloomberg / Getty Images)
Update: At 4:17 PM on Wednesday, January 9, AIG announced that it would not join in the shareholder lawsuit being launched against the federal government.

Memories can be short on Wall Street, but AIG (AIG) is setting new records for selective amnesia. The giant insurance company, which only recently finished paying off its staggering debt to the federal government, is now considering whether or not to file a lawsuit against the very institution that saved it.

In 2008, AIG was on the brink of bankruptcy. Its coverage of risky, mortgage-backed financial instruments -- bad investments that lay at the heart of crisis that would launch the Great Recession -- blew up in its face, leaving it with a downgraded credit rating and too little money to cover its bets. As its stock price plummeted, the Federal Reserve Bank stepped in with $85 billion, the largest federal bailout of a private company in American history. In return, AIG gave the government a 79.9% equity stake in the company.

But that was only the beginning: ultimately, the government loaned AIG a total of $182.3 billion, and took a 92% stake in the company.

Five years later, AIG has completely turned around. It has paid back that money -- with interest -- and is trying to rebuild its image with "Thank You, America," an advertising campaign that highlights the company's role in rebuilding places like tornado-devestated Joplin, Mo., Ground Zero in New York, and the East Coast areas devastated by Hurricane Sandy. The centerpiece of the push is this video:



It's a savvy move. AIG's public image has been largely dominated by its Great Recession excesses, including the impressive bonuses it gave many of its employees, the private plane its CEO Robert H. Benmosche demanded, and the high salaries its executives received. The company's attempt to show its important role helping Americans recover from large-scale disasters could go a long way toward healing some very ugly wounds with the American people -- and, not incidentally, their elected representatives.

Of course, that assumes that the company doesn't do something colossally stupid like -- for example -- suing the government. Unfortunately, that's exactly what AIG is considering doing right now. On Wednesday, its board will meet to decide whether or not to join in a $25 billion suit against the government.

The lawsuit, The New York Times reports, is being spearheaded by Maurice Greenberg, AIG's former CEO and a major stockholder in the company. It alleges that the government charged unreasonably high interest rates on its loans and that it violated the Fifth Amendment by seizing private property for public use without just compensation.

One might reasonably ask what could convince a company so recently out of debt and so deeply in the public relations doghouse to burn any small amount of goodwill in a high-profile lawsuit. The answer is "responsibility to shareholders" -- a mantra that has increasingly become Wall Street's version of the Nuremberg Defense. ("We were just following orders.") AIG's participation in the lawsuit could lead to a huge out-of-court settlement, which would be a major payday for the company and its investors, including Greenberg.

On the other hand, if AIG chose to sit this one out and Greenberg managed to squeeze money out of the government, the company's other shareholders would not get any of it. Those investors could them claim that AIG had been negligent in failing to sue, which would open the insurance company up to yet more lawsuits.

And so, the company finds itself at a crossroads: Does it trash its tenuous relationship with the public and its saviors in Washington, or does it take a stand against its stockholders and its former CEO? If past history is any indication, betting on AIG's moral fiber in the face of a potential lawsuit -- and potential profit -- is a losing proposition.



AIG Considers Lawsuit Against the Government

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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kkaaatt@northstate.net

AIG can go straight to hell!You bastards were at our mercy.I grew up wanting.I know how to live at minimum.Now you want to sue because we saved your pathetic selves.Screw up again and you will realize who has the power in this country!!!

January 14 2013 at 8:07 PM Report abuse rate up rate down Reply
donovansdanes

AIG and the banks should have all been allowed to financially fail.

These SOB's knowingly financially ruined the U.S. economy.

January 09 2013 at 9:45 AM Report abuse +1 rate up rate down Reply
Jim

Be it resolved that the next time this company has its back against the wall not one red cent of public money be expended to save their sorry ass.

January 09 2013 at 9:32 AM Report abuse rate up rate down Reply
ehealy423

This is just great!! I say let AIG sue and then the government can counter sue and then take the ungrateful company permanently over, break it into parts and sell it to thr highest bidders.

January 09 2013 at 8:53 AM Report abuse rate up rate down Reply
sau197

OH THAT HURTS- HELP OUT A GIANT WITH MY HARD EARNED MONEY AND BECAUSE OF THEIR GREED now THEY want to sueME THE american citizen are they really this greedy they screw the people that helped them survive the arrogance is incredable beyond belief.

January 09 2013 at 8:50 AM Report abuse rate up rate down Reply
bainehl3

Cretins; all of them!

January 09 2013 at 7:59 AM Report abuse rate up rate down Reply
bainehl3

Cretins; all of them!

January 09 2013 at 7:59 AM Report abuse rate up rate down Reply
bainehl3

Cretins; all of them!

January 09 2013 at 7:59 AM Report abuse rate up rate down Reply
billybuttlooker

SHOULD HAVE LET THE BASTARDS GO UNDER

January 09 2013 at 7:32 AM Report abuse rate up rate down Reply
Pam

How dare AIG for even thinking about suing the Federal Government! If they are so worried about their stockholders getting short changed, then why don't they take some of that $165 million in bonus money the AIG big wigs paid to their employees and give it to the stockholders. Doesn't anyone remember how they took the bail out money and gave a huge chunk of change to the very employees who got them in trouble in the first place? I can't stand AIG for cr@pping on the very people who saved them from bankruptcy.

January 09 2013 at 1:52 AM Report abuse rate up rate down Reply