The remnants of securities contained in facilities created by the Federal Reserve Bank of New York to help bail out American International Group in 2008 were sold today, a key milestone in the company’s efforts to end the government’s equity interest in AIG.
Today’s sale of the remaining $3.4 billion face amount of collateralized debt obligations backed by mortgage-backed securities held in the Maiden Lane III facility “marks the end of an important chapter, our assistance to AIG, that was undertaken to stabilize the financial system in the midst of the financial crisis,” William Dudley, president of the New York Fed, says in a statement.
Analysts at Sterne Agee in New York project that AIG will gain perhaps $2.9 billion above the $5 billion it paid into Maiden Lane III, up from an earlier estimate of $2.1 billion because interest in the securities is high as they carry far higher yields than currently offered through the market.
That does not necessarily represent a gain on the company’s investment, an analyst says, because AIG had already taken markdowns of over $30 billion on its earnings to reflect payment of guarantees associated with the securities when the company turned them over to the Fed in late 2008.
Under the agreement in 2008 with the New York Fed that created Maiden Lane III, AIG gets its equity stake returned, interest on the loan, plus one-third of additional proceeds from sale of the securities beyond the $24.3 billion invested by the Fed. AIG estimates that it has received $600 million in interest on its loan.
The prior securities sold from the Maiden Lane III portfolio yielded 56 percent of face value. It was not announced how much the Fed received for the last batch of securities.
But Dudley says the sale will result in a net gain for the benefit of the public of approximately $6.6 billion, including $737 million in accrued interest on the New York Fed’s loan to ML III.