Fresh from paying back a $182 billion bailout, the American International Group has been running a nationwide advertising campaign with the tagline “Thank you America.”
Behind the scenes, the restored insurance company is weighing whether to tell the government agencies that rescued it during the financial crisis: Thanks, but you cheated our shareholders.
The board of AIG will meet Wednesday to consider joining a $25 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 funneling of billions to the insurer’s Wall Street clients – deprived shareholders of tens of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for “public use, without just compensation.”
Maurice R. 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, Greenberg could challenge its decision to abstain.
Should Greenberg snare a major settlement without AIG, the company could face additional lawsuits from other shareholders. Suing the government would not only placate the 87-year-old former chief but would put AIG in line for a potential payout.
Yet such a move 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, people briefed on the matter said. The people, who spoke on the condition of anonymity, noted that without the bailout, AIG 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, AIG has seized on the significance and complexity of the case, which is filed in both New York and Washington. A federal judge in New York dismissed the case, while the Washington court allowed it to proceed.
“The AIG board of directors takes its fiduciary duties and business judgment responsibilities seriously,” said a spokesman, Jon Diat.
On Wednesday, the case will command the spotlight for several hours at AIG’s Lower Manhattan headquarters.
Greenberg’s company, Starr International, will begin with a 45-minute presentation to the board, according to people briefed on the matter. Greenberg is expected to attend, they added.
It will be an unusual homecoming of sorts for Greenberg, who ran AIG 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 Wednesday, 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. Each side will have a few minutes to rebut.