AIG Sues Bank of America for $10 Billion
Monday, 08 August 2011

American International Group Inc is suing Bank of America Corp to recover more than $10 billion over a "massive fraud" on mortgage debt, deepening the litigation morass facing the largest U.S. bank.

Bank of America shares fell as much as 16.4 percent to their lowest level since April 2009, underperforming its main rivals, amid a broad market decline that followed Standard & Poor's downgrade of United States credit ratings.

AIG said it expects to pursue other litigation to recover losses from counterparties that "sought to profit at our expense." Taxpayers still own 77 percent of the New York-based insurer, which received $182.3 billion of government bailouts.

Monday's lawsuit may complicate Bank of America Chief Executive Brian Moynihan's efforts to contain losses from the bank's $2.5 billion purchase of Countrywide Financial Corp, once the largest U.S. mortgage lender, in July 2008.

That purchase is now considered a disaster for the Charlotte, North Carolina-based lender because of the costs of litigation and writing down bad loans.

Moynihan "inherited a ton of excess baggage," said Michael Mullaney, who helps oversee $9.5 billion at Fiduciary Trust Co in Boston, which has sold nearly all its Bank of America stock. "Bank of America's stock price will remain under duress," he said.

The AIG case is among a growing number of lawsuits by investors seeking to hold banks responsible for losses on soured mortgages that contributed to the financial crisis.


AIG accused Bank of America and its Countrywide and Merrill Lynch units of misrepresenting the quality of mortgage-backed securities, including more than $28 billion it bought, and lying to credit rating agencies about the underlying loans.

According to its complaint, AIG examined 262,322 mortgages that backed 349 offerings it bought between 2005 and 2007. It said the quality of 40.2 percent of the mortgages was significantly inferior to what had been represented.

"Defendants were engaged in a massive scheme to manipulate and deceive investors, like AIG, who had no alternative but to rely on the lies and omissions made," said the complaint, filed on Monday in the New York State Supreme Court in Manhattan.

Bank of America rejected AIG's allegations.

"AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets," spokesman Lawrence Di Rita said. "It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors."

According to The New York Times, AIG is preparing similar lawsuits against other banks. Among these, it said, is Goldman Sachs Group Inc, which received $12.9 billion as one of the biggest beneficiaries of the government bailouts. Goldman did not immediately respond to a request for comment.

In morning trading, Bank of America shares were down $1.03, or 12.6 percent, at $7.14, after earlier falling to $6.83. AIG shares were down $1.69, or 6.7 percent, at $23.41.


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