Afraid of looking like a world-class ingrate, AIG on Wednesday decided against suing the federal government over the $182 billion bailout that saved the giant insurance company from collapse.
American International Group Inc was put in the awkward position of having to consider joining a lawsuit brought against Uncle Sam by its former CEO, Maurice "Hank" Greenberg.
The suit claims that the terms of the taxpayer-funded bailout were too onerous. The government received a huge stake in AIG when it bailed the company out at the height of the 2008 financial crisis. AIG has since paid all the money back and notes that the government made a $22.7 billion profit.
The timing could hardly have been worse for AIG. The company is in the midst of a "Thank You, America" advertisement campaign to show its gratitude for being rescued from the brink of collapse.
The prospect of the insurer joining the lawsuit had already triggered public outrage, and rightly so. The company was the most reviled of bailouts not only for being the single largest rescue but also for paying hefty bonuses to the employees whose bad bets on the subprime housing market would have toppled the company had taxpayers not stepped in.
A congressman from Vermont issued a statement telling AIG: "Don do it. Don even think about it ... AIG became the poster company for Wall Street greed, fiscal mismanagement and executive bonuses - the taxpayer and economy be damned. Now, AIG apparently seeks to become the poster company for corporate ingratitude and chutzpah." The volume of AIG mentions on Twitter rose more than 50-fold on Tuesday, according to Topsy Analytics.
Comedian Andy Borowitz drafted a mock letter from the company to taxpayers, asking for more bailout money to pay for the cost of the lawsuit. Dozens of obscene comments made descriptive references to the anatomy of Chief Executive Robert Benmosche.
AIG claimed that it was legally obligated to consider joining the lawsuit as part of its fiduciary duties to the company and shareholders. The claim is based on the Fifth Amendment of the US Constitution which prohibits the taking of private property for public use "without just compensation."
The company said it would not join Greenbergs lawsuit and wouldn permit Greenberg to pursue his claims in AIGs name. AIGs CEO Bob Benmosche told CNBC in a televised interview that the company would be better off in the long run without the "headwinds" of the lawsuit and should look forward, rather than focusing on the past.
"Its not acceptable socially for AIG to take the money and go back and sue the government," Benmosche said in the CNBC interview. "A deal is a deal."
The insurer nearly imploded after making huge bets on mortgage investments that later went wrong. Regulators were concerned that if it were allowed to fail it would send shock waves through the financial system, which was already reeling as Lehman Brothers collapsed.
The company became a symbol for excessive risk on Wall Street and a touchstone of public anger. It was criticized by some members of Congress for spending $440,000 on spa treatments for executives only days after it was bailed out and for the millions of dollars in bonuses it paid to executives.
Mark Calabria, a former senior Republican aide on the Senate banking committee, said that while AIG had a duty to listen to its shareholders, the board must have weighed the potential bludgeoning it would have endured from regulators, lawmakers and taxpayers alike, had it decided to sue the government.
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