AIG agreed to pay $960m to resolve a shareholder lawsuit that had demanded compensation – potentially exceeding $100bn – for the collapse in the insurance group’s value when it was bailed out by the US government in 2008.
The class action suit was filed in 2008, shortly after AIG was rescued by the US Treasury and Federal Reserve as it racked up huge losses on insurance written on plunging mortgage securities.
Shareholders led by the state of Michigan claimed they “suffered tens of billions of dollars of losses, at the least, based on false and materially misleading statements that AIG, certain of its executives, directors, underwriters and outside auditor made concerning the company’s financial results, business operations and condition”.
AIG paid $960m to avoid the risk that the lawsuit would be successful and the company would be sunk again by bills that it could not pay. During the crisis it was collateral calls from banks such as Goldman Sachs that led to the company’s giant $180bn bailout.
It is one of the biggest payouts of its type. Bank of America, another of the top bailouts of the financial crisis, paid $2.4bn in 2012 to settle a shareholder lawsuit, which argued the company concealed information about the financial health of Merrill Lynch, the securities group it bought in 2008.
“We are pleased to resolve this longstanding dispute,” said AIG. “The resolution of this and other legacy financial crisis related matters better enables us to focus on AIG’s future.”
The company has separately reached settlements with a string of banks, which it claimed bore responsibility for the toxic subprime securities which they sold and had insured by AIG.
However, not all its legal issues are over. A handful of individual investors, including the Kuwait Investment Authority, have sued the insurer and may choose to pursue their separate litigation.
The settlement was disclosed as AIG reported net income of $3.1bn in the second quarter, compared with $2.7bn in the same period a year earlier. The results are the last under of Bob Benmosche, who hands over as chief executive to Peter Hancock next month.
“AIG’s results in the second quarter were solid. Overall, our businesses demonstrated our continued discipline and resilience, underscoring our focus on improving the results of our core insurance businesses,” said Mr Benmosche.
Shares in AIG rose 2.4 per cent in after-market trading to $53.94 after the results, which exceeded analysts’ expectations.