American International Group Inc sued two money management firms on Thursday in the start of a fight to recoup billions of dollars the bailed-out insurer said it lost due to fraud.
The insurer, 92 percent-owned by the U.S. government, joined the swelling ranks of investors and insurers who are taking on Wall Street over supposedly safe mortgage-related investments at the heart of the 2008 financial crisis.
The insurance giant sued ICP Asset Management and Moore Capital in New York State Supreme Court, but made clear that the lawsuits were the start of a campaign that would put Wall Street's biggest banks in its sights.
AIG, which received $182 billion in bailout money, contended it suffered losses by insuring mortgage securities that one of the financial firms created.
ICP could not be immediately reached for comment. A Moore spokesman said in a statement: We haven't seen the complaint, and therefore can't comment on it.
AIG's campaign will likely take aim at Bank of America Corp, Goldman Sachs Group Inc and other Wall Street banks, according to a person familiar with AIG's strategy.
The banks sold AIG mortgage bonds with top-notch credit ratings that have since plummeted in value.
Goldman Sachs and Bank of America declined to comment.
Investors, bond insurers and federal home loan banks have already sought tens of billions of dollars from the banks for misrepresenting the quality of the home loans that were packaged into bonds known as mortgage-backed securities.
While none of the lawsuits has gone to trial, Bank of America recently reached a $1.6 billion settlement with Assured Guaranty Ltd, which insured mortgage bonds. Some financial and legal analysts said that deal showed the legal claims posed a real risk to the banks.
PART OF LARGER REVIEW
AIG signaled that more lawsuits could be on the way.
At last year's annual meeting, AIG CEO Bob Benmosche said we would review our dealings with all of the counterparties with which we did business before and during the financial crisis to see if they harmed us by their conduct. This suit is the first result of that review, the company said.
The lawsuit was brought by AIG's Financial Products unit as part of the insurer's overall efforts to recoup potentially billions of dollars from the fraudulent conduct of these defendants and other parties, the complaint said.
Some stock analysts say the ultimate cost of legal claims against banks stemming from various mortgage-related securities could be hefty. reach into the tens of billions of dollars.
The claims could end up costing Back of America alone nearly $30 billion, said Chris Gamaitoni, an analyst with Compass Point Research & Trading LLC.
However, that could be spread over many years as much of the litigation has bogged down in procedure.
The U.S. government rescued AIG at the height of the 2008 financial panic, pumping billions into the company, after it and other giant financial firms suffered huge losses from securities tied to the U.S. housing market crash.
A big profit from the AIG rescue and the government's eventual disentanglement ahead of U.S. elections in 2012 would be a boost for the Obama administration, coming on the heels of successes at Citigroup Inc and General Motors Co.
A U.S. Treasury spokesman it was not involved in the decision to sue the money managers.
$350 MILLION DAMAGES ALLEGED
The lawsuit said the defendants breached obligations to AIG related to the creation of complex collateralized debt obligations, or CDOs.
AIG said it has suffered more than $350 million in damages from the alleged misconduct, which included using inflated values on the mortgage bonds that were packaged into the CDOs. By inflating the values, ICP created windfall profits for itself and swelled its management fees, the lawsuit argues.
The complaint draws on last year's SEC lawsuit against ICP in Manhattan federal court, accusing the investment advisory firm of repeatedly violating federal securities laws.
The AIG case is AIG Financial Products v ICP Asset Management LLC et al, Supreme Court of New York, New York County, No. 651117/2011.
(Additional reporting by Martha Graybow, Noeleen Walder, Rachelle Younglai and Joseph Ax; Editing by Howard Goller and Gerald E. McCormick)