AIG to weigh up suing US over rescue

American International Group Inc. said its board would weigh on Wednesday a push by its former chief executive to take the lead in a shareholder suit challenging the legality of the September 2008 rescue.

The former CEO and founder of AIG, Maurice “Hank” Greenberg, sued the government for US$25 billion in November 2011 through his company Starr International for taking control of nearly 80 percent of AIG without fairly compensating shareholders.

The government moved to take over AIG to prevent its imminent collapse from sparking a snowball of gigantic failures throughout the global financial system.

At the time, AIG was the world's largest insurer and had exposed itself with massive insurance contracts with banks and other investors tied to the collapsing credit derivatives market.

AIG said that Starr has demanded the board decide whether it will take over Starr's case, or permit Starr to continue pursuing it.

“Under applicable law ... the AIG Board must consider and respond to Starr's demand, and expects to do so by the end of January 2013,” it said.

The company noted that it could attempt to block Starr's suit, or refuse to take part, but that it would risk losing potential benefits if it did so.

“If AIG does not allow the derivative claims to proceed on AIG's behalf and Starr prevails or obtains a favorable settlement on its direct claims, then AIG will not receive any of the amounts recovered.”

The U.S. has slowly sold off its holdings in AIG over the past two years, disposing of its last shares only in December. The Treasury said the government had earned a US$22.7 billion net profit on the bailout.

Current CEO Robert Benmosche responded to criticisms Tuesday that AIG would essentially sue U.S. taxpayers whose funds paid to rescue the insurer from complete collapse and bankruptcy.

“AIG has paid back its debt to America with a profit, and we mean it when we say thank you to the American people,” Benmosche said in a statement.

“At the same time, the board of directors has fiduciary and legal obligations to the company and its shareholders to consider the demand served on us and respond in a fair, appropriate, and timely manner.

“Tomorrow's board meeting is about listening to all of the parties involved and gaining a thorough understanding of the issues.”

Among participants in the meeting Wednesday, a government source said, will be representatives from the New York branch of the Federal Reserve, which had managed the takeover of AIG.

A New York Fed spokesperson said there was “no merit” to allegations that the takeover was unconstitutional.

“AIG's board of directors had an alternative choice to borrowing from the Federal Reserve and that choice was bankruptcy. Bankruptcy would have left all AIG shareholders with worthless stock.

“The Federal Reserve's actions with regard to AIG helped to restore financial stability in the United States during a period of intense volatility and vulnerability in the U.S. economy.”

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