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AIG could fall 3.5% if Greenberg wins, Credit Suisse says

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(Bloomberg) — American International Group Inc. (AIG) could fall as much as 3.5 percent if former Chairman Maurice “Hank” Greenberg wins a lawsuit against the U.S. tied to the insurer’s 2008 bailout, Credit Suisse Group AG said.

The estimate is based on Greenberg’s Starr International Co. having a 30 percent chance of winning a case in which he contends that the rescue cheated shareholders out of at least $25 billion.

The risk to AIG is that U.S. Court of Federal Claims Judge Thomas Wheeler rules in Greenberg’s favor, and the government seeks to recover funds from the insurer. The New York-based insurer has said it would fight an attempt by the U.S. to collect. Credit Suisse’s Thomas Gallagher assumed a potential cost of $8 billion, based on an estimate that the figure could be as high as $23 billion and would more likely be $500 million.

“The results of our analysis suggest headline risk of 1.5 percent to 3.5 percent in the event Starr International wins,” Gallagher wrote in a note Thursday. “We continue to remain comfortable with AIG’s position due to our view that even in the unlikely event that Starr is successful, we think there is a reasonable chance that AIG could have the indemnification provision overturned.”

The last time AIG fell at least 3.5 percent in a day was in May of last year, after reporting a decline in quarterly earnings.

‘Shareholder rights’

Credit Suisse had put Greenberg’s chance of success at 10 percent heading into the trial. Closing arguments were Wednesday.

“As the case has progressed, our view of the odds of a Starr International victory have increased,” the analyst wrote. “More information has come to light and emails have exposed what may be interpreted as damage to shareholder rights.”

AIG climbed 0.3 percent to $56.75 at 4:15 p.m. in New York. The company has advanced 1.3 percent this year.

The government took over about 80 percent of AIG’s stock as part of the rescue, which swelled to $182.3 billion. The U.S. eventually posted a profit of $22.7 billion after the insurer repaid its obligations.

Gallagher assumed that legal appeals could drag on over five years, delaying any potential payments until 2020.

– With assistance from Andrew Zajac in Washington.

See also:

AIG’s Hancock expects more asset sales after insurer shrank

AIG wins court approval of $970.5M settlement with investors