FED Auctions Out AIG's Bad Assets - Analyst Blog
May 01 2012 - 12:15PM
Zacks
The Federal Reserve Bank of New York (“FED”) recently sold
approximately 16% of the Maiden Lane III portfolio to
Barclays Capital (BCS) and Deutsche
Bank (DB).
The Maiden Lane III portfolio, comprising collateralized debt
obligations (CDOs), were acquired from the American
International Group (AIG) in 2008 to terminate the credit
default swaps (CDS) that it had issued.
Last week, FED announced that the duo had successfully won the
competitive bidding of the MAX CDO portfolio valued at $7.5
billion. FED decided against disclosing the transaction amount till
July 16 this year, but declared that the price would allow the
tax-payers to derive maximum recovery.
BlackRock Inc. (BLK) was responsible for the
arrangement of the auction. Credit Suisse Group AG
(CS), Morgan Stanley (MS), Goldman
Sachs (GS), Merrill Lynch of Bank of America
Corp. (BAC), Citigroup (C) along with
Nomura Holdings (NMR) were among the other
bidders. FED also stated that it is on the look out for an
opportunity to dispose remaining asset from Maiden Lane III.
Maiden Lane III was created in 2008 to provide AIG with $24.3
billion cash. This was also a part of $182 billion fund approved by
the government to rescue AIG, which was hit by the financial
downturn.
Under the financial bailout program, the Treasury Department
provided a lifeline of $68 billion along with $144 billion pooled
in by FED. AIG could repay only $17.5 billion of the loan until
January 14, 2011 when FED decided to terminate the financial
assistance and sell the assets in order to repay AIG’s obligations
to the American public.
FED conducted a number of auctions earlier this year to sell off
AIG’s assets, thereby shedding its residential mortgage-backed
securities completely. Most recently in February, FED sold the
Maiden Lane II securities, recovering $19.5 billion. The net
earnings for the tax payers were $2.8 billion.
Presently, a balance of $8.996 billion remains unpaid on the
loan. Fed also has the original Maiden Lane portfolio, which was
created to facilitate JPMorgan Chase & Co.
(JPM) in purchasing Bear Stearns.
The quantitative Zacks #3 Rank (short-term Hold rating) for the
company indicates no clear directional pressure on the stock over
the near term. We retain our long term Neutral recommendation on
AIG.
AMER INTL GRP (AIG): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis Report
BARCLAY PLC-ADR (BCS): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
NOMURA HLDG-ADR (NMR): Free Stock Analysis Report
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