The heads of Goldman Sachs Group Inc. and JPMorgan Chase & Co. told federal regulators days ahead of the 2008 government bailout of American International Group Inc. that they were putting together a private rescue of the insurance giant, a New York Fed lawyer testified.

When AIG’s name came up in a Sept. 12 meeting of financial regulators and creditors of Lehman Brothers Holdings Inc., which was teetering toward bankruptcy, Goldman Sachs Chief Executive Officer Lloyd Blankfein and JPMorgan CEO Jamie Dimon said, “That’s another problem we’re taking care of,” said Thomas Baxter, general counsel of the New York Federal Reserve Bank.

“I took careful note of that colloquy and it led me to believe that we had another issue in AIG but it was being addressed by the private sector,” Baxter told a judge in Washington yesterday in a trial over the terms of the U.S. bailout.

Maurice “Hank” Greenberg’s Starr International Co., the biggest shareholder in AIG when the financial crisis struck, sued the U.S. in 2011 seeking more than $25 billion for losses from the insurer’s bailout. Starr claims the assumption of 80 percent of AIG’s stock in exchange for an $85 billion loan was an unconstitutional “taking” of private property because the Federal Reserve Board of Governors lacked the legal authority to take equity in a company in consideration of a loan.

The private bailout never happened and on Sept. 16, 2008, the New York Fed hired JPMorgan’s then-counsel, Davis Polk & Wardwell LLP, “to essentially take over the documentation of a deal that was originally going to be done by JPMorgan Chase,” Baxter said in court.

‘Own Proposal’

“We were stepping into the shoes of another lender, we were taking over their legal counsel and also their adviser, and then formulating our own proposal to lend to AIG,” Baxter said in response to a question from Starr’s attorney, David Boies.

Baxter said he was unaware of requests by Greenberg to participate in meetings with Fed officials in the run-up to bailout, which began on Sept. 16.

Throughout the first days of the trial Boies has contrasted the Fed’s treatment of Morgan Stanley with how it dealt with AIG to try to show that some banks got a better deal.

Morgan Stanley became a bank holding company on the weekend of Sept. 20 and 21, a designation that required a Fed finding that it was “well capitalized and well managed,” according to Baxter.

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