American International Group Inc., which opted against joining Maurice “Hank” Greenberg in a suit against the U.S., became a victor in the case after a judge ruled that the former chief executive officer isn’t entitled to compensation over the insurer’s 2008 rescue.
AIG climbed 1.1 percent to $62.57 at 4 p.m. in New York, the biggest increase in the 87-company Standard and Poor’s 500 Financials Index. The stock could’ve dropped as much as 3.5 percent if the U.S. was forced to pay damages, because of concerns that the government would turn to AIG to recover costs, Thomas Gallagher, an analyst at Credit Suisse Group AG, said in April.
U.S. Court of Claims Judge Thomas Wheeler said Monday that the U.S. set illegal terms in the bailout and didn’t have authority to take equity in exchange. The judge said that his ruling didn’t create a legal right of recovery to shareholders, including Greenberg, who had sought at least $25 billion in damages.
“This is a great ruling for common sense and very much in line with what shareholders were hoping for,” Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in an interview. “People have been nervous about the possibility of a material verdict.”
AIG has been seeking to return capital to shareholders through dividends and buybacks after repaying the rescue in late 2012. The New York-based insurer has said it welcomes increased oversight from the Federal Reserve as one of the largest non-bank financial institutions.
“Big picture, this is AIG putting its scarlet letter behind it,” Stirling said of the verdict. Jennifer Hendricks Sullivan, a spokeswoman for AIG, had no immediate comment.
AIG was prepared to defend itself if the U.S. sought funds, the insurer had said in its annual report to the U.S. Securities and Exchange Commission. The company could be protected by Wheeler’s ruling even if Greenberg wins an appeal and is eventually awarded monetary damages, John Nadel, an analyst at Piper Jaffray Cos., said in an interview.
“The fact that the judge ruled that the taking of the equity stake was unconstitutional seems to be a pretty good defense” for the insurer if the U.S. seeks to recover funds from the company, Nadel said. “It’s a pretty good outcome for AIG.”
Potential investors may have been discouraged from buying the stock before the court ruling, even though AIG trades at more affordable valuations than competitors, said Amit Kumar, an analyst at Macquarie Group Ltd.
“There was a set of people who were quite nervous” about the suit, Kumar said. “With the decision being out, it removes an overhang and brings a new set of investors into the stock.”