Agents and brokers certainly understand the importance of fine print in agreements, and now
AIG is sweating the consequences of indemnifying the Federal Reserve Bank of New York for any payouts from litigation tied to the emergency loans in their bailout agreement.
By 2012, AIG finished paying back taxpayers for the bailout, with the government receiving a positive return of about $23 billion USD.
Now, in what was originally seen as a long shot to get to the courtroom, former chairman and CEO of AIG, Maurice “Hank” Greenberg, is seeking more than $40 billion USD for losses he says his firm and other shareholders suffered in the bailout.
The details weren’t given much attention in light of AIG’s lengthy list of other priorities during their rehabilitation, but now the Greenberg’s firm, Starr International, alleges the government took the shareholders property in violation of the US constitution.
Given the provision, the burden would now fall on AIG if Mr. Greenberg wins.
Although analysts and legal experts believe any payment will come years down the road as the losing side is expected to appeal all the way to the US Supreme Court, this case could have a slew of negative effects on AIG’s recovery process.
AIG does have the option to argue that the indemnification provision should not be enforced, if the government is indeed found guilty of acting unlawfully. Analysts believe the company could argue the provision wasn’t intended to cover misconduct by the government – and it would be wrong to require AIG to cover the government’s liability for illegally taking property from the company’s own shareholders.
Nevertheless, the former financial powerhouse has already seen its market capitalization cut by more than half, down to $80 billion USD from its peak of about $240 billion USD. Under former chief executive Robert Benmosche the company sold off assets and refocused on its core insurance operations.
The trial is expected to run about six weeks in the US Court of Federal claims in Washington. Officials expected to testify include FED Chairman Ben Bernanke and ex-Treasury secretary Timothy Geithner.
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