The Headache Continues: AIG to Sue Bank of America Over Mortgage Bonds

Further extending a tiresome issue in many shareholders minds, American International Group AIG is expected to file a civil lawsuit against Bank of America BAC over hundreds of mortgage-backed securities. Citing three people familiar with the matter, the New York Times is reporting that AIG is seeking to recover $10 billion in losses on $28 billion of soured investments. The suit claims that the bank and its acquired properties, Merrill Lynch and Countrywide Financial, misrepresented the value of the mortgages placed in purchased derivatives. Both AIG and Bank of America have faced a tumultuous past few years. AIG was bailed out for more than $180 billion by the U.S. government in 2008, and is still largely owned by taxpayers. Bank of America has experienced deep and painful write-offs on its balance sheet while facing a tightening regulatory environment. Further intensifying the situation, the Times notes that "AIG is preparing similar suits against other large financial institutions including Goldman Sachs GS, JPMorgan Chase JPM and Deutsche Bank DB, said the people with knowledge of the complaint, as part of a litigation strategy aimed at recovering some of the billions in losses the insurer sustained during the financial crisis." AIG's forthcoming lawsuit against Bank of America involves mortgage securities that AIG bought from the bank. AIG is expected to assert that the bank and its entities provided false information, including to the ratings agencies that rated the securities.