Biting the hand that feeds you
American International Group Inc., the insurer rescued by the U.S.government in 2008 with a bailout totaling $182 billion, recently launched a high-profile television ad campaign called "Thank you, America," in which it offers the public its gratitude for the bailout.
Those words ring rather hollow with the revelation that AIG may now join a lawsuit, filed against the government by the insurer’s former CEO Maurice "Hank" Greenberg, alleging that terms of the deal were unfair.
Greenberg, whose Starr International owned 12 percent of AIG before its near-collapse, has accused the New York Fed of using the rescue to bail out Wall Street banks at the expense of shareholders, and of being a "loan shark" by charging exorbitant interest on the initial loan, Reuters reports. A federal judge in Manhattan dismissed Greenberg’s suit in November; it is being appealed. A separate suit under different legal theories is still pending in the U.S. Court of Federal Claims.
The U.S. Treasury completed its final sale of the AIG stock in mid-December, concluding the bailout with what Treasury called a positive return of $22.7 billion.
Some business analysts are quick to defend the AIG board, arguing that considering such an action is exactly what the board is supposed to do because its top priority is to return value to its shareholders.
"Gratitude doesn’t make money," writes Matthew Philips of Bloomberg Businessweek. "If they think the insurer left money on the table back in 2008 and there’s a chance to recoup some of it, the decision is easy: Sue the government that saved it from bankruptcy during the darkest days of the financial crisis. Crass as that may be, it would be a smart business move."
Furthermore, if the board does not give careful consideration to the case, Greenberg could challenge its decision to abstain, the New York Times reports. Should the former CEO snare a major settlement without AIG, the company could face additional lawsuits from other shareholders.
However, as Forbes magazine writes, "Joining Greenberg’s lawsuit may be the prudent way for the board to meet its obligations to investors, but it surely won’t play well in the court of public opinion."
Already public opinion is weighing heavily against Greenberg for filing his lawsuit in the first place, and now against AIG for considering joining the suit.
"It’s hard to see that $182 billion figure and think that somehow AIG got screwed in the deal," said Bloomberg’s Philips. "The alternative to being rescued was to go bankrupt and default on its $440 billion portfolio of credit default swaps, which plausibly could’ve brought down the entire global economy," and "complete ruin for shareholders, too.
"The company’s true mistake wasn’t letting the government cram an onerous deal down its throat, it was thinking that it could insure billions worth of corporate debt the same way it insured cars and houses," Philips continued. "Sometimes you get what you deserve."
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