Approximately $7.5 billion in face value of the exotic securities backed by sub-prime mortgage loans that almost brought American International Group (AIG) under were sold Thursday through an auction by the Federal Reserve Bank of New York.
The securities, called collateralized mortgage obligations, are backed by junk-rated mortgages and were held by the New York Fed in a facility called “Maiden Lane III.”
It means that the end-game is being played on securities purchases by the Fed that were part of the federal government’s immense financial aid to the company in the fall and winter of 2008.
They were sold to a consortium that included Barclays Capital Inc. and Deutsche Bank Securities Inc. following a competitive bidding process.
They beat out two other groups, one consisting of Bank of America, Morgan Stanley and Nomura, and the other consisting of Citigroup, Goldman Sachs and Credit Suisse.
The securities sold by the Fed were termed “MAX,” because they were most speculative held in the Maiden Lane III facility.
The Fed would only say that the transaction “substantially reduces” the Maiden Lane III portfolio and that they were sold “at a desirable price.”
William C. Dudley, president of the New York Fed, said “I am pleased with the level of interest and the results of this process, especially with the strength of the winning bid, which represents good value for the public and significantly exceeds the original price Maiden Lane III paid for these assets.”
He added that, “This successful sale marks another important milestone in the wind-down of our crisis-era intervention.”