AIG - The Insurer Saved By US Taxpayer Bailout - Considers Joining Shareholder Case To Sue US Government

Global insurance giant AIG, which was saved by a bailout following the onset of the financial crisis in 2008, is considering joining a legal case that wants to sue the US government for forcing unacceptably high losses on it.

The argument being made - which was originally put forward in 2011 by former chief executive Hank Greenberg - is that the $182 billion (£113bn) violated the Fifth Amendment's prohibition on the government seizing private property without proper compensation.

The shareholders claim the bailout has cost the shareholders too much money, and are now suing for compensation.

AIG appealed to the US government for help the day after America's fourth-largest investment bank Lehman Brothers had gone to the wall. It was massively hit by the collapse of the US housing market.

The-then US Treasury secretary Henry Paulson had earlier refused to bail out Lehman Brothers after it filed for bankruptcy protection, but supported helping AIG as it was in the interest of tax-payers, given AIG was the insurer for many other financial institutions.

The initial bailout was a loan of up $85bn at an interest rate of Libor (the London inter-bank lending rate) plus 8.5 percentage points. The New York Fed took on 79.9% of the company's stock.

However, the bailout expanded to $182bn, leaving the Fed with 92% of the company. All loans were paid back by the end of 2012, prompting a high-profile television advertising campaign called 'Thank you, America', in which the company offers the public its gratitude for the bailout.

The terms - seen as harsh by some - were deliberately chosen to draw a line in the sand. If you are a big company who is on the brink of going bust and you want a government bail out, it was going to cost you.

The alternative was to follow the Lehman example and work the process out through the courts - also a costly option.

Reaction to the news in the US has been one of disbelief: Bloomberg's Business Week headlines its article 'Forget Gratitude: AIG considers suing US over bailout', while The Week simply states ' The Gall: AIG considers suing the government for its bailout'.

And the New York Times reported that government officials are already upset with the company for even seriously entertaining the lawsuit. Former New York Attorney General Eliot Spitzer, who probed AIG when he was in office, has publicly called the prospect of a lawsuit "insulting to the public".

A spokesman for the New York Fed told the FT: "There is no merit to these allegations. AIG's board of directors had an alternative choice to borrowing from the Federal Reserve and that choice was bankruptcy. Bankruptcy would have left all AIG shareholders with worthless stock.

"The Federal Reserve's actions with regard to AIG helped to restore financial stability in the United States during a period of intense volatility and vulnerability in the US economy."

AIG currently employs 2,000 people in the UK and more than 100,000 people worldwide.

For more on this story, see our colleagues' coverage in the US Huffington Post, including the fact that AIG has already sued the US government in the past year for interest payments on over paying its taxes since 1991.