AIG sues NY Fed over right to sue Bank of America, others

NEW YORK Fri Jan 11, 2013 9:03pm EST

The logo of American International Group Inc. (AIG) on the outside of their corporate headquarters in New York, November 10, 2008. REUTERS/Mike Segar

The logo of American International Group Inc. (AIG) on the outside of their corporate headquarters in New York, November 10, 2008.

Credit: Reuters/Mike Segar

NEW YORK (Reuters) - American International Group Inc has filed a lawsuit against a vehicle created by the Federal Reserve Bank of New York to help bail out the insurer, in a bid to preserve its right to sue Bank of America Corp and other issuers of mortgage debt that went sour.

The complaint filed in the New York State Supreme Court in Manhattan seeks a declaration that AIG has not transferred billions of dollars of "litigation claims" to Maiden Lane II, including many related to the insurer's $10 billion lawsuit against Bank of America.

Maiden Lane II was created in December 2008 to buy residential mortgage-backed securities (RMBS) from AIG and ease liquidity strains.

According to the complaint, New York Fed officials in December told Bank of America that Maiden Lane II had, by agreeing to buy the securities, assumed from AIG all litigation claims relating to what it bought. AIG said this included more than $7 billion of damages claims against Bank of America.

AIG is not seeking monetary payments in the lawsuit, but wants the court to clarify that the New York-based insurer still has the right to sue issuers of securities in Maiden Lane II.

New York Fed spokesman Jack Gutt declined to comment. Bank of America spokesman Lawrence Grayson also declined to comment.

The lawsuit is part of the fallout from AIG's $182.3 billion federal bailout that began in September 2008, and which was fully paid off last year.

It came after AIG provoked a firestorm in Congress and from the American people this week as it mulled whether to sue the government that bailed it out by joining a $25 billion lawsuit by former Chief Executive Maurice "Hank" Greenberg. AIG eventually decided to stay out of that case.

When it sued Bank of America in August 2011, AIG accused the Charlotte, North Carolina-based lender of misrepresenting the quality of more than $28 billion of securities it had bought from the bank and its Countrywide and Merrill Lynch units.

An AIG spokesman said Friday's lawsuit "narrowly seeks a declaration from the Court that a 2008 contract between AIG and ML II did not transfer to ML II AIG's right to sue Bank of America and other financial institutions for the billions of dollars of damages they caused AIG and its shareholders in connection with the fraudulent sale of RMBS to AIG."

According to Friday's complaint, Maiden Lane II paid $20.8 billion for a variety of subprime and other mortgage securities from AIG, barely half of their estimated $39.3 billion face value.

The case is American International Group Inc et al v. Maiden Lane II LLC, New York State Supreme Court, New York County, No. 650115/2013.

(Reporting by Jonathan Stempel in New York; Editing by Gary Hill)

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Comments (4)
AZWarrior wrote:
I have no opinion about the relative merits of the suit, but every time I see “AIG”, I see a company that should no longer exist by the rules of capitalism. In the real world this zombie would be dead and a stronger, more efficient company would take its place. BUT NO. The politicians used our money, taken by force, to bail out their backers. No one goes to jail, no body has to answer for this crime, just business as usual. Perhaps it is time to start over. No more “America, love it or leave it”, no more “my country right or wrong”, just “get it right or go the way of the dinosaurs”.

Jan 11, 2013 10:17pm EST  --  Report as abuse
economicmodel wrote:
A VERY GOOD proposition made by AIG. AIG is not the cause of subprime mortgage crises. AIG is the VICTIM. I defend AIG.

It is NOT the Insurance Fault. It is the Subprime and Alt Lender Fault. (Subprime = pretty unqualified loan, Alt = Junk Loan).

Insurance is the VICTIM of the Very Bad Collateral.

Jan 12, 2013 12:55am EST  --  Report as abuse
Rhino1 wrote:
Did I read somewhere the other day that AIG want to sue the government?

It’s all the wrong way around. “Capital” punishment for the lot of them, I say.

Wasn’t that the lot that went golfing in some fancy resort with the bailout money, 400,000$ for a weekend?

Jan 12, 2013 10:30am EST  --  Report as abuse
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