AIG on Thursday said it would use $4.3bn it is seeking from former chief executive Hank Greenberg’s firm to repay the US government rather than compensate its executives, in an attempt to defuse one of its opponent’s main arguments ahead of Monday’s trial.

The surprise statement by the stricken insurer, which is 80 per cent-owned by the government, comes as a long battle over ownership of a large stake in AIG is about to play out in legal proceedings in which Mr Greenberg is likely to be the star witness.