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Retirement Planning > Social Security

AIG Faces Competition for Not-So-Distressed Damsels

By Arthur D. Postal

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WASHINGTON BUREAU — American International Group Inc. may have to fight other financial services firms for a chance to repurchase mortgage-backed securities (MBS) it sold to Maiden Lane II L.L.C., a fund controlled by the Federal Reserve Bank of New York, in November 2008.

AIG, New York (NYSE:AIG), offered the New York Fed $15.7 billion for the securities earlier this month. Now AIG President Robert Benmosche says the New York Fed appears to be conducting an auction for the Maiden Lane II holdings.

Benmosche said he believes a number of firms are looking at the securities. Barclays P.L.C., London, is said to be one of the bidders.

The New York Fed created Maiden Lane II during the depths of the financial crisis, when the U.S. housing market had started to collapse and the credit markets were frozen. AIG used $22 billion in cash in obtained through the arrangement to meet securities lending obligations.

The securities in the fund are residential MBS backed by subprime mortgages.

The AIG Offer

Benmosche said Wednesday on CNBC that AIG has been talking to the New York Fed about buying the Maiden Lane II securities back since September 2010 and made a firm offer in December 2010.

AIG has calculated that the price it offered would give the New York Fed a $1.5 billion profit. The company has yet to hear back from the bank, Benmosche said.

Benmosche said AIG would like a quick answer from the New York Fed because it believes it can earn more from the Maiden Lane II securities than from other investments on the market and that the duration pattern of the securities is a good match for AIG’s long-term insurance liabilities.

“You got $21 billion that’s gotta go to work,” Benmosche said. “All of this puts a pressure on the date.”

Benmosche noted that the federal government, which owns a 92% stake in AIG, plans to start selling its shares to the public in May.

Other AIG coverage from National Underwriter Life & Health:

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