AIG sues bank over debt ‘fraud’

AMERICAN International Group is suing Bank of America to recover more than $10 billion (€7bn) over a “massive fraud” on mortgage debt, deepening the litigation morass facing the largest US bank.

Bank of America shares fell as much as 16.4% to their lowest level since April 2009, under-performing its main rivals, amid a market decline that followed Standard & Poor’s downgrade of the United States credit ratings.

AIG said it expects to pursue other litigation to recover losses from counterparties that “sought to profit at our expense”. Taxpayers own 77% of the New York-based insurer, which received $182.3bn of government bailouts.

Yesterday’s lawsuit may complicate Bank of America chief executive Brian Moynihan’s efforts to contain losses from the bank’s $2.5bn purchase of Countrywide Financial Corp, once the largest US mortgage lender, in July 2008.

That purchase is now considered a disaster for the North Carolina-based lender because of the costs of litigation and writing down bad loans.

The AIG case is among a growing number of lawsuits by investors seeking to hold banks responsible for losses on soured mortgages.