PhillyDeals: King of Prussia investment group sued AIG

Apartment mogul Mitchell L. Morgan's King of Prussia investment group sued an arm of American International Group Inc. in Common Pleas Court in Norristown, accusing the taxpayer-backed insurance and investment giant of delaying promised payments to fund $120 million in repairs at 86 buildings from New York to Wilmington.

In the complaint, filed last month and reported in yesterday's Wall Street Journal, Morgan says AIG is blaming late payments on delays by the company's government overseers, who demanded more paperwork before sending promised cash. The Federal Reserve and Treasury Department bailed out AIG last year, claiming its collapse would injure its big-bank clients and stall the economy.

AIG spokeswoman Christina Pretto said the

companies agreed to stop fighting in court until May 11 while they try to reach a deal. Philadelphia lawyer Howard Klein, of Conrad, O'Brien, Gellman & Rohn, P.C., representing Morgan, declined to comment on the suit.

Morgan's company roughly doubled its apartment portfolio, to more than 30,000 units, when it bought the 86 buildings for a reported $2 billion two years ago from Kushner Cos., of New York. AIG provided the equity, with loans from Wachovia Bank (now part of Wells Fargo & Co.) and other lenders.

Big real estate people move in political circles. Kushner Cos. was run by Charles Kushner, a Democratic contributor who went to prison in 2005 after he was convicted of illegal contributions to then-New Jersey Gov. Jim McGreevey.

Morgan is a Republican activist who has hosted former President George W. Bush and 2008 GOP candidate John McCain at his Bryn Mawr home. He was cosigner of a campaign letter urging Jewish voters in Pennsylvania to back McCain because he was more pro-Israel than Obama.

What should we think when a government-run company does something that squeezes an investor with opposition ties? Three people familiar with the Morgan-AIG struggle insist this is about payment, not politics.

Last year, the Federal Reserve told credit-card lenders to start warning borrowers 45 days before they hike interest rates; limit card fees for subprime borrowers, and end schemes like "double-cycle billing" that boost fees above promised rates.

The reforms were supposed to take effect in July 2010. Then Democrats took over Congress, and started proposing laws to speed the changes.

U.S. Rep. Mike Castle (R., Del.), who represents Bank of America's and JPMorgan Chase & Co.'s Wilmington-based credit-card bankers, wants Congress to slow down.

Castle brought Federal Reserve consumer affairs chief Sandra Braunstein before reporters yesterday to warn that rushing restrictions on lenders "could end up further constricting credit."

Reminded that banks are already boosting fees and cutting credit limits, Braunstein and Castle agreed it's tough to tell if that's because of the impending reforms or because the handful of big lenders that dominate card lending have had a tough time selling old loans to raise the cash they need to make new ones, because of the bond market slowdown.

In fact, the Fed lacks comprehensive data tracking card rates. Castle called current data "piecemeal." That can't make it any easier to write policy.

Treasury Secretary Timothy Geithner's warning yesterday that banks will need more money helped drive the KBW Bank Index down more than 10 percent.

He wasn't the only guy yelling alarms. "Loss will be significantly larger than what most are expecting" from bank loans to factories and stores this year, warned analyst James Abbott and colleagues at Friedman, Billings, Ramsey & Co. Inc.

The group put PNC Financial Services Group, the nation's fifth-largest bank, on a short list of lenders "at greatest risk for defaults" because they lend in places "where the unemployment rate is rising quickly and/or housing prices are falling faster than average."

"PNC will not be immune," said spokesman Fred Solomon, while adding that the company has already marked down at-risk loans, and has "strong capital levels."