NEW YORK (MarketWatch) — American International Group Inc., the insurance giant rescued from collapse by taxpayers at the height of the financial crisis in September 2008, refused on Wednesday to join a lawsuit against the U.S. government filed by its former CEO Hank Greenberg.

The decision follows vociferous public criticism of the insurer this week triggered by news that AIG AIG, +4.12% was considering joining the lawsuit. Starr International Co., Greenberg’s company, filed the lawsuit last year and sought $25 billion in damages, alleging that the terms of the government bailout of AIG were unfavorable to the insurer.

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After a board meeting in New York Wednesday, AIG said it has “determined to refuse Starr’s demand in its entirety, and will neither pursue these claims itself nor permit Starr to pursue them in AIG’s name.”

AIG plans to file a formal statement with the courts detailing the board’s decision and the reasons underlying it in coming weeks.

“In considering and ultimately refusing the demand before us, the board of directors properly and fully executed our fiduciary and legal obligations to AIG and its shareholders,” said Robert S. “Steve” Miller, chairman of the AIG board, in a statement.

“To date, AIG has returned $205 billion to America, including a profit of $22.7 billion. We continue to thank America for its support,” he said. Read AIG’s full statement on the lawsuit.

Shares of AIG ended up 0.3%.

The Financial Select Sector SPDR Fund XLF, +1.53% , which tracks financial stocks in the S&P 500, dropped 0.2%.

The top decliner among financial stocks and in the Dow Jones Industrial Average DJIA, +0.56% was Bank of America Corp. BAC, +1.40% . Its shares dropped 4.6% after the lender was downgraded to neutral from outperform by Credit Suisse for valuations reasons.

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“The current valuation appears to be ahead of the company’s near- to intermediate-term performance and appears to be discounting significantly faster improvements in efficiency than we would be expecting,” Moshe Orenbuch, an analyst at Credit Suisse, wrote in a note to clients. Orenbuch also said that it will be hard for Bank of America to grow revenue faster than the average bank.

Elsewhere in the financial sector, shares of PNC Financial Services Group Inc. PNC, +2.35% fell 0.1%.

PNC said in a regulatory filing Wednesday that its fourth-quarter net income will be reduced by 47 cents a share due to expenses associated with its residential-mortgage-banking activities.

The lender said it recorded $91 million of expenses in the fourth quarter of 2012 related to residential mortgage foreclosure activities.

The broader stock market gained on Wednesday after aluminum producer Alcoa Inc. AA, +1.12% said it swung to a fourth-quarter profit. The S&P 500 index SPX, +0.07% rose 0.3% to end at 1,461.02. Read: U.S. stocks rise after two-day slide.

In a report about regional banks, Oppenheimer & Co. analysts upgraded their ratings on KeyCorp KEY, +2.23% and FirstMerit Corp. US:FMER to outperform from perform, citing both stocks’ current valuations and growth outlook. They reiterated their outperform ratings on PNC Financial and SunTrust Banks Inc. US:STI. Oppenheimer also downgraded its rating on Comerica Inc. CMA, +2.21% to perform from outperform. Comerica’s shares dropped 1%.

Shares of Unum Group UNM, +3.43% gained 0.7% after Deutsche Bank analysts started coverage of the insurance company with a buy rating.

Genworth Financial Inc. GNW, -1.13% advanced 1.2%, while Citigroup Inc. C, +3.25% fell 1%. Wells Fargo & Co. WFC, +3.17% ended unchanged, with the bank due to report quarterly results on Friday.