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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