WASHINGTON BUREAU — The Federal Reserve Bank of New York will be using a unit of BlackRock Inc. to sell residential mortgage-backed securities (RMBS) that American International Group Inc. handed over to the bank in 2008.
The New York Fed put the RMBS in a limited liability company, Maiden Lane II L.L.C., when AIG, New York, turned to the New York Fed for emergency financing for help with meeting collateral calls linked to troubled credit default swaps operations.
AIG recently announced that it has made a $15.7 billion offer for the RMBS, which are valued at $21.7 billion at par, and AIG President Robert Benmosche reported that the company was having trouble getting a response from the New York Fed.
The New York Fed has decided to decline AIG’s offer because of improving market conditions for the Maiden Lane II portfolio, New York Fed officials say.
Black Rock, New York, will help the New York Fed sell the Maiden Lane II RMBS “individually and in segments rather than as a single block,” officials say.
BlackRock will begin “begin more extensive asset sales while taking appropriate care at all times to avoid market disruption,” officials say.
The New York Fed and the Federal Reserve Board “judged that the public interest in maximizing returns from any sale and promoting financial stability would be better served by an alternative approach to realizing value that is also more consistent with normal market practice,” officials say.
Investor interest in the portfolio is strong, officials add.
Companies with an interest in the RMBS include Barclays P.L.C., London, and Swiss Reinsurance Company, Zurich, according to press reports.
AIG says in a statement that it is “highly disappointed” with the Fed’s decision.
The decision, “may prevent AIG from delivering on its goal that U.S. taxpayers earn a profit on their investment in AIG,” the company says. “That the Fed, which has been such a constructive partner over the last two years, would hurt the very company in which U.S. taxpayers own a 92% stake is very difficult to understand. Since the fall of 2010, based on numerous discussions with the New York Fed, we had anticipated we would have the opportunity to buy these assets at a fair price by January 2011 and earn a return on them for the benefit of the U.S. taxpayer. Now, we must make up for lost time and lost earnings – all of which hurts U.S. taxpayers.”
AIG will continue to work to restore AIG to full independence from government support and to ensure that that U.S. taxpayers recoup their investment in the company, AIG says.
“We are a strong company, and every one of our 63,000 employees has been working nonstop to repay U.S. taxpayers since the day they lent us money,” the company says. “We have made such enormous progress – repaying more than $36 billion in government obligations this year, including to the New York Fed – and will continue to take all the right steps to strengthen our company and earn investor confidence.”