American International Group Inc (AIG) Should Be Doing Better Than It Is Today

An hour and a half into trading, American International Group Inc (NYSE:AIG) is up 0.65%, continuing last week’s steady, upward performance that was strong enough to beat Friday’s market correction. But while AIG is beating the market today, it’s not quite keeping up with its financials sector peers. In part at least, chalk this up to a game of chicken AIG played with Bank of America Corp (NYSE:BAC), and subsequently lost.

Can’t we all just get along

Late last Thursday, Reuters reported that B of A rejected American International Group Inc (NYSE:AIG)’s offer to resettle out of court an $8.5 billion dispute over bad mortgages sold by Countrywide Financial. The multibillion-dollar settlement had been agreed upon in 2011, but it was later challenged as unfair by AIG and other investors.

Angling for more money, American International Group Inc (NYSE:AIG) and company got the case back into in a New York State courtroom at the start of June. But when presiding judge Barbara Kapnick had to temporarily halt proceedings due to scheduling conflicts, she suggested that all parties involved — which includes bond giants BlackRock, Inc. (NYSE:BLK) and PIMCO — try to settle the case in mediation.

Foolish bottom line

Bank of America Corp (NYSE:BAC) refused the offer, obviously feeling confident enough in its case to take its chances in the courtroom. Under siege and under pressure for so long now over the reemergence of this old case, the tide may have turned in B of A’s favor, at least from the market’s perspective. As a result, American International Group Inc (NYSE:AIG) now looks like the weaker party for making an epic fuss and then trying to settle out of court, perhaps hampering its performance in the market today — at least relative to its peers.

There’s also the market wave to consider: After markets around the globe tanked in the wake of the Federal Reserve’s announcement that it might start tapering quantitative easing later this year, they’ve rebounded much more quickly and powerfully than this Foolish analyst predicted. And American International Group Inc (NYSE:AIG) is certainly riding that wave; it even managed to fight back against last Friday’s market correction.

That said, there’s still plenty of volatility out there. Investors continue to be uneasy over a potential credit crunch developing in China. On top of that, the big June jobs report is out this Friday. And with the market crutch of quantitative easing hanging in the balance, investors can’t make up their minds about whether to be bullish on good economic news or bearish.