American International Group (AIG) has recovered more than US$2 billion from banks in settlements for soured mortgage bonds that nearly caused the collapse of the world’s biggest insurer during the 2008 financial crisis, the Financial Times reported Sunday.
The deals, mostly private, mean AIG will not pursue further legal action against the banks for mis-selling mortgage-backed securities before 2008.
“We have had settlement discussions with many banks that have ended up, I think, very favourably for both sides,” Peter Hancock, incoming AIG chief executive, said.
AIG was one of the biggest buyers of mortgage bonds and also wrote US$50 billion worth of credit default swaps – a financial product developed by Hancock while he was a banker at JPMorgan – that offered payouts should housing markets plummet.
After the subprime crash, the insurer became the epicentre of the ensuing financial shock and narrowly avoided collapse thanks to a $182 billion US government bailout, the report said.
AIG has been rebuilding its business, repaying American taxpayers and recouping some of its losses from its mortgage investments.
Last week, the 95-year-old insurer said it had reached a settlement worth at least US$650 million with Bank of America Merrill Lynch over mortgage securities AIG had once claimed were “marred by fraud, misrepresentations and omissions”.
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