It was not just lawmakers and taxpayers who expressed concern when the board of the American International Group met this month to consider joining a lawsuit against the government agencies that rescued the insurer during the financial crisis. The company’s lawyers, too, delivered a stark warning to the board, with one saying the lawsuit had only a 20 percent chance of success, according to a letter filed on Wednesday.
The directors also worried that joining the lawsuit could harm A.I.G.’s reputation, DealBook’s Ben Protess reports. The lawsuit, which was brought by the insurer’s former chief executive, Maurice R. Greenberg, and the firm he now runs, Starr International, “threatened to destroy much of the good work that A.I.G. and its employees had done rebuilding A.I.G. and its name and reputation,†the directors feared, according tothe letter by Paul Curnin, the lawyer who advised A.I.G. The directors also learned that at least one state insurance regulator had called to urge them not to join the case, the letter says.
A ‘NUCLEAR HOLOCAUST’ ASSET, CREATED BY MORGAN STANLEY  | Documents released in a lawsuit shed new light on what bankers knew at the height of the housing bubble and how they used that knowledge, Jesse Eisinger writes in DealBook. The case centers on a $500 million collateralized debt obligation created in the first half of 2006 that Morgan Stanley sold to a Chinese bank â€" an asset that employees, in e-mail, jokingly referred to as “Subprime Meltdown,†“Hitman†and “Nuclear Holocaust.†The documents raise a larger concern, that “people across the bank understood that the American housi! ng market was in trouble,†Mr. Eisinger writes. “They took advantage of that knowledge to create and then bet against securities and then also to unload garbage investments on unsuspecting buyers.â€
“Bankers were getting information from fellow employees conducting and receiving private assessments of the quality of the mortgages that the bank would purchase to back securities. These reports weren’t available to the public. It would be crucial information for trading in securities backed by those kinds of mortgages.†Morgan Stanley, for its part, contends that the buyers of the asset were sophisticated, that the firm disclosed its strategy and that any shorting of the deal was part of a larger array of trades.
GOLDMAN CLEARED OVER SALE GONE WRONG  | Goldman Sachs emerged victorious on Wednesday from a legal fight over its role in the doomed sale of Dragon Systems to Lernout & Hauspi for $580 million. A federal jury in Boston found that the investment bank was not negligent in arranging the deal, which went awry 13 years ago when the buyer collapsed in a huge accounting fraud, Reuters reports. The plaintiffs, including Dragon’s founders, Jim and Janet Baker, had sought several hundred million dollars in damages.
Goldman’s chief executive, Lloyd C. Blankfein, received word of the verdict in Davos, Switzerland, where he showed up sporting a beard, according to Lionel Barber of The Financial Times.
ON THE AGENDA  | Among the companies reporting earnings on Thursday evening are Microsoft, AT&T, E*Trade Financial and Star! bucks. Ray Dalio of Bridgewater Associates is on CNBC at 7:30 a.m. Gary Cohn, Goldman Sachs’s president, is on Bloomberg TV at 11 a.m. Glenn Hutchins of Silver Lake, the firm discussing a possible buyout of Dell, is on CNBC at 11:10 a.m. The chief executive of Citigroup, Michael L. Corbat, appears on CNBC at 3 p.m.
IN SHORT: NEW PAPER FROM RESEARCH AGENCY  | The Office of Financial Research, an agency created under the Dodd-Frank law to monitor risks to the financial system, has released a paper on bank stability. It’s called “CoCos, Bailâ€In, and Tail Risk.â€
KASHKARI PLANS A RETURN TO PUBLIC SERVICE  | The man who as the initial overseer of the Treasury Department’s bank bailout program, Neel T. Kashkari, is planning to leave his job at Pimco to run for government office. “As much as I have enjoyed my time at Pimco, I feel an obligation and a desire to serve my community through public service,†Mr. Kashkari said in a statement. Mr. Kashkari, who would run as a Republican, has created a Web page outlining his ideas. DealBook’s Michael J. de la Merced writes: “Running for office would take Mr. Kashkari into perhaps his most public role since the financial crisis, when he gained attention for his role as the Treasury Department’s interim assistant secretary for financial stability. A former Goldman Sachs employee, he was only 35 at the time, with six years of experience in finance and government.†He was nicknamed “the $700 billion man†in reference to his work on the Troubled Asset Relief Program.
Mining Companies May Take Cautious Approach to Deals  | A number of C.E.O.’s in the mining sector have stepped down in the last year. Their successors may initially be cautious to make big deals, even as commodity prices are rebounding, The Wall Street Journal writes. WALL STREET JOURNAL
Jana Partners Goes to Investors With Plan to Break Up Agrium  | Reuters reorts: “Activist shareholder Jana Partners L.L.C. said on Wednesday it is taking its case for splitting up Agrium Inc. to the fertilizer company’s Canadian investors, just ahead of an Agrium move to solidify its support among sell-side analysts.†REUTERS
Electra Said to Consider Sale of Animal Identification Company  | The private equity firm Electra “has hired Rothschild to explore a sale or a refinancing of electronic animal identification company Allflex, which is worth about $1 billion, four industry sources with knowledge of the plan said,†Reuters reports. REUTERS
Commerzbank to Cut Up to 6,000 Jobs  | Facing a sluggish economy and tougher capital requirements, Commerzbank says it will cut up to 10 percent of its work force in a bid to increase earnings, joining other European banks that have announced restructuring plans in recent months. DealBook Â'
JPMorgan Names New Head of Compliance  | Cindy Armine, JPMorgan Chase’s co-chief control officer, is taking over from Martha Gallo, who has overseen compliance at the bank for more than two years, according to The Financial Times. FINANCIAL TIMES
Citigroup’s C.E.O. Says He’ll Wait to Shed Assets  | “Today, it doesn’t make sense†for Citigroup to shed assets more quickly, the bank’s chief executive, Michael L. Corbat, said on Bloomberg TV. BLOOMBERG TV
Barclays Moves to Cut Jobs in Asia  | Barclays plans to lay off about 70 employees in its investment banking division in Asia, or about 15 percent of the unit, as part of its broader plans to reorganize, The Wall Street Journal reports. WALL STREET JOURNAL
W! ith Uneve! n Results, Citigroup’s Retail Bank Under Pressure  |Â
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At Davos: Dimon’s Cuff Links, Schwarzman’s Tone and Swag  | The overall mood at Davos was more sober than in years past, but there was plenty of room for pointed remarks from luminaries and dignitaries in attendance. DealBook Â'
K.K.R. Takes 25% Stake in Firm That Invests in Natural Disasters The investment firm K.K.R. said on Wednesday that it had taken a 24.9 percent stake in Nephila Capital, an $8 billion firm that focuses on reinsurance opportunities tied to catastrophes like hurricanes and earthquakes. DealBook Â'
Predicting a Private Equity Comeback  | The Wall Street Journal reports on the chatter at Davos: “A range of finance executives said here Tuesday that they expect the buyout business to boom in 2013. In conversations Blackstone Group’s John Studzinski, Lazard C.E.O. Kenneth Jacobs, and Guggenheim Partners chief investment officer Scott Minerd all expected LBO volume to surge.†WALL STREET JOUR! NAL
In Bet Against Green Mountain, Einhorn Suffers a Loss  | In a letter to its investors, Greenlight Capital writes: “Our coffee was too hot, our apple was bruised and our iron supplements didn’t go down smoothly.†DealBook Â'
Einhorn Said to Have Bet Against Herbalife  | David Einhorn told investors on Tuesday that Greenlight Capital had profited last year on a bet against Herbalife, a company at the center of a clash between hedge fund titans, The Wall Street Journal reports, citing unidentified people familiar with the firm. WALL STREET JOURNAL
Netflix Reports a Surprisingly Strong Quarter  | The Media Decoder blog writes: “Netflix’s growth spurt in streaming â€" up by 2.05 million customers in the United States, from 25.1 million in the third quarter â€" was its biggest in nearly three years, and helped the company report net income of $7.9 million, surprising many analysts who had predicted a loss.†NEW YORK TIMES MEDIA DECODER
In Japan, Equity Deals Ha! ve a Stro! ng Start to the Year  |Â
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Foreign Incubators of Start-Ups Expand in the U.S.  | The Wall Street Journal reports: “At a time when some U.S. incubators are shrinking, start-up incubators from Russia, Australia and Japan are ramping up in the Bay Area, buying office space and launching programs to establish ties with Silicon Valley investors.†WALL STREET JOURNAL
Barclays Executives Are Named in Rate-Rigging Case  | The Financial Times reports: “Barclays’ former senior executives including Bob Diamond, John Varley, Jerry del Missier and current chief financial officer Chris Lucas are among 104 of the bank’s current and former employees who attempted to keep their names private in High Court litigation involving the first British damages claim over the alleged manipulation of Libor.†FINANCIAL TIMES
Informant for F.B.I. Said to Implicate Former SAC Trader  | An informant told investigators that he shared confidential stock tips with Dipak Patel, formerly of SAC Capital Advisors, The ! Wall Stre! et Journal reports, citing unidentified people briefed on the matter. WALL STREET JOURNAL
Wells Fargo Sued by German Agency Over Losses  | Wells Fargo “was sued Wednesday by a German government agency that accused it of mismanaging a collateralized debt obligation, resulting in more than $160 million in losses,†Reuters reports. REUTERS
Firm Focused on Investing in Lawsuits Brings in Old Leader  | Parabellum, which focuses on the exotic business of fnancing lawsuits, has hired Howard Shams from Credit Suisse as a managing principal. He will work alongside a group that he assembled nearly seven years ago. DealBook Â'
