%1

Residential Capital LLC sued mortgage-bond buyers including AIG Asset Management LLC and Allstate Insurance Co. to prevent them from collecting money ahead of other creditors in the company's bankruptcy, Bloomberg News reported yesterday. Mortgage investors who lost money on securities they bought from ResCap should not be given priority over unsecured creditors, ResCap said in a court filing yesterday. The lawsuit is a response to an attempt by affiliates of AIG, Allstate, Massachusetts Mutual Life Insurance Co. and Prudential Insurance Co. of America to get paid before unsecured creditors, ResCap said. Should the insurers succeed, they may end up collecting twice for almost identical claims at the expense of unsecured creditors, according to ResCap.

The U.S. Treasury, under pressure to quickly wind down its crisis-era bailouts, believes that it cannot rush the sale of auto lender Ally Financial because the company's mortgage lending unit is in a messy bankruptcy, Reuters reported on Friday. Ally is one of Treasury's largest remaining holdings, but the lender will be hard to exit as long as it is working through the bankruptcy of its Residential Capital unit and is also selling its international operations. In a report last month, an internal Treasury watchdog said that the agency needed a more concrete plan for repayment of the $17.2 billion it poured into Ally during the crisis. The government's difficulties in exiting Ally show how hard it will be for Treasury to completely close down TARP. Treasury has recovered 93 percent of the $418 billion it put into the program, but remaining companies could take a long time to shed.

The U.S. Treasury plans to start winding down its investment in Ally Financial Inc. as the bailed-out auto lender sells off international holdings and its mortgage subsidiary moves forward in bankruptcy proceedings, moves that could happen as soon as this year, the Wall Street Journal reported today. "As these two key initiatives are completed, Treasury will be able to monetize its remaining investment through a sale of stock [either through a public or private sale] or through further sale of assets," Assistant Secretary for Financial Stability Timothy Massad said in response to a critical report on Tuesday by the Special Inspector General for the Troubled Asset Relief Program. The U.S. government injected $17.2 billion into Ally, the one-time lending arm of GM, as part of the government's auto-industry rescue. Treasury, which has gotten $5.8 billion of that bailout money back via interest, dividends and a stock repurchase, now owns about 74 percent of Ally.

American International Group Inc. filed legal papers yesterday asking its former chief executive to inform a federal court if he will challenge the company's decision to stay out of his lawsuit against the government, the Wall Street Journal reported today. The suit is being pursued by AIG's longtime former leader, 87-year-old Maurice R. "Hank" Greenberg, through a company he leads. The entity, Starr International Co., was long one of AIG's biggest shareholders. The suit contends the U.S. government extracted onerous terms in its rescue package for AIG, and seeks about $25 billion. The U.S. Court of Federal Claims in Washington, D.C., ruled in July that the case could proceed, after federal officials sought to dismiss it. The court also required AIG to decide whether it would join Starr's complaint. News of AIG's possible involvement in the lawsuit earlier this month unleashed a torrent of criticism that the insurer appeared ungrateful toward taxpayers for the government's rescue effort, one of the biggest of the 2008-09 crisis. AIG said in its filing yesterday that it wants to close the loop on its role in the lawsuit, after its board voted unanimously on Jan. 9 to pass on participating.

Bank of America Corp.'s claims against MBIA Inc. over the bond insurer's 2009 restructuring are supported by an insurance regulator’s refusal to let MBIA make an interest payment, a lawyer for the bank said, Bloomberg News reported yesterday. The decision by New York’s Department of Financial Services, disclosed yesterday by MBIA, backs claims from Charlotte, N.C.-based Bank of America and Paris-based Societe Generale SA in litigation against the insurer, a lawyer for the banks said in a letter to state Justice Barbara Kapnick yesterday. The banks claim assets were improperly transferred out of MBIA Insurance, harming policyholders.

Since the summer of 2011, the insurance giant American International Group has been battling Bank of America over claims that the bank packaged and sold it defective mortgages that dealt AIG billions of dollars in losses, the New York Times reported today. Now AIG wants to be able to sue other banks that sold it mortgage-backed securities that plunged in value during the financial crisis. It has not said which banks, but possibilities include Deutsche Bank, Goldman Sachs and JPMorgan Chase. But to sue, AIG first must win a court fight with an entity controlled by the Federal Reserve Bank of New York, which the insurer says is blocking its efforts to pursue the banks that caused it financial harm. According to a lawsuit filed Friday, AIG is seeking a declaration from a New York state judge that it has the right to pursue “billions of dollars of fraud and other tort claims that exist against numerous financial institutions,” even though Fed officials have said AIG gave up that right.

The board of the American International Group has declined to join a lawsuit against the federal government over its $182 billion taxpayer-financed bailout, the New York Times DealBook blog reported yesterday. The decision follows a public uproar over the possibility that AIG would sue the same authorities that rescued it during the financial crisis. The board had been weighing whether to join a $25 billion lawsuit filed by its former chief executive, Maurice R. Greenberg, on behalf of shareholders, arguing that they lost tens of billions of dollars when the government attached onerous terms to the bailout.

Fresh from paying back a $182 billion bailout, the board of American International Group Inc. will meet tomorrow to consider joining a $25 billion shareholder lawsuit against the government, the New York Times DealBook blog reported today. The lawsuit contends that the onerous nature of the rescue - the taking of what became a 92 percent stake in the company, the deal's high interest rates and the funneling of billions to the insurer's Wall Street clients - deprived shareholders of tens of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for "public use, without just compensation." Maurice R. Greenberg, AIG's former chief executive, who remains a major investor in the company, filed the lawsuit in 2011 on behalf of fellow shareholders. He has since urged AIG to join the case, a move that could nudge the government into settlement talks.

A life insurer that purchased $35 million in notes issued by Dewey & LeBoeuf has sued three of the defunct law firm's former top executives, accusing them of concealing the firm's "serious financial problems" to raise money from potential bondholders, Reuters reported yesterday. U.S. units of Britain's Aviva Plc filed the lawsuit in Iowa federal court on Friday, naming former Dewey chairman Steven Davis, former executive director Stephen DiCarmine and former chief financial officer Joel Sanders as defendants. Dewey & LeBoeuf, which in May became the largest law firm in U.S. history to file for chapter 11, was not named as a party to the lawsuit. The lawsuit alleges that the three former executives violated federal and state securities laws by concealing critical information about Dewey's financial health in the years leading up to its failure. They not only hid information from investors, but also from the public, the firm's auditors and even its own partners, according to the complaint. The plaintiffs are Aviva Life and Annuity Company and a New York subsidiary of the insurer. The case is Aviva Life and Annuity Co. v. Davis, U.S. District Court (S.D. Iowa), no. 12-603.

The Illinois Department of Insurance is seeking a court order to gain possession and control of the assets and liabilities of a subsidiary of Triad Guaranty Inc., a move the Winston-Salem, N.C.-based company has agreed to and says will likely lead it to begin bankruptcy proceedings, The Business Journal reported yesterday. The company announced the plans on Tuesday. As a result of the action, Triad Guaranty Inc., the parent company of Triad Guaranty Insurance Corp., will cease to have any oversight or management authority over its subsidiary's business and affairs. Triad Guaranty Inc. will receive a payment of $734,000 from the subsidiary, but will not receive any further reimbursements. The company gave up selling new policies in 2008 and has just been managing its existing portfolio since then. It recently disclosed that it had fallen below a key financial threshold insisted on by the Illinois Department of Insurance that oversees it.