Close Close

Life Health > Life Insurance

Fed Sells Remaining Maiden Lane II Securities; Sees Net Gain of $2.8B

Your article was successfully shared with the contacts you provided.

The Federal Reserve Bank of New York late Tuesday finally closed out one chapter of the controversial bailout of American International Group by selling the last remaining securities held in the Maiden Lane II facility.

Under the arcane system used to account for such financings, the sale will result in full repayment of the $19.5 billion loan extended by the New York Fed to ML II.

Sale of the final or residual component of the facility meant that the New York Fed made more money selling the securities in Maiden Lane II itself.

Last April, AIG CEO Robert Benmosche made an offer through a letter made public through an 8k securities filing with the SEC to re-purchase the securities held in Maiden Lane II.

The Fed declined, and decided to sell the securities itself. The first sale, in June, depressed the marketing, according to comments last fall by officials of Trepp LLC, a New York firm which tracks the prices and volume of such instruments.

But, the latest sales, Jan. 19th, Feb. 9 and Tuesday, resulted in gains to the Fed, and therefore the government, greater than the offer made by AIG.

AIG’s bid promised a $ 1.5 billion profit for taxpayers, excluding accrued interest of $580 million which was included in the Fed’s profit calculation.

The latest sale means that the government will have a net gain of approximately $2.8 billion, including $580 million in accrued interest on the loan, the Fed said.

More on this topic

The sale will also send roughly $1.3 billion in proceeds to AIG, which in 2008 provided $1 billion to support Maiden Lane II.

Earlier this month, a bulk sale of bonds to Goldman Sachs Group Inc. ensured that the New York Fed would be fully repaid on its $19.5 billion loan to the vehicle during the crisis.

The latest sale, through auction, was to Credit Suisse Group AG. It bested four other Wall Street dealers in an auction for residential mortgage-backed securities with an unpaid principal balance of $6 billion. The Swiss bank likely paid more than 50 cents on the dollar for the bonds.

According to a spokesman for the Fed, the latest sale involved the residual portion of the financing. Under the deal with AIG, 5/6th of the residual goes to the Fed, and 1/6th to AIG.

The Maiden Lane II facility was originally created in November 2008 to provide cash for AIG.

The securities were comprised of  residential mortgage-backed securities of various grades from prime to sub-prime and had a face value of $39.8 billion.

They were acquired by AIG’s Financial Products unit and collateralized by reserves held by AIG’s life insurance subsidiaries.

A second facility is still outstanding. Maiden Lane III involved collateralized debt obligations purchased by AIGFP. The original amount funded by the FRBNY was $24.3 billion.

William C. Dudley, president of the New York Fed, said, “The completion of the sale of the Maiden Lane II portfolio has resulted in significant gains for the public and marks an important milestone in the wind-down of the extraordinary interventions necessitated by the financial crisis.”