Credit Suisse Said to Seek Investors for New York Fed's AIG Mortgage Bonds
Credit Suisse Group AG (CSGN), Barclays Plc (BARC) and Morgan Stanley are each seeking groups of investors to counter American International Group Inc. (AIG)’s $15.7 billion bid for a pool of mortgage bonds held by the Federal Reserve Bank of New York, people with knowledge of the discussions said.
The dealers are among bond brokers gauging whether they can assemble bids from customers that would beat AIG’s offer if the Fed decides to sell the assets, according to the people, who declined to be identified because the talks are private. Banks have told clients that the New York Fed, which hired BlackRock Inc. (BLK) to manage the portfolio, probably isn’t ready for bids or to decide on the sales process, the people said.
AIG, which is 92 percent-owned by the U.S. government, made public on March 10 its offer for the assets, which the insurer turned over to a Fed fund in 2008. AIG said its proposal would benefit taxpayers by boosting investment returns at the company as it seeks to attract private capital to replace government funds. The New York Fed said March 11 it’s seeking a solution that “maximizes the proceeds to the taxpayer.”
The Fed “sort of has their hands tied, it has to come down to the best bid,” said Jonathan Hatcher, a strategist who covers financial institutions at Jefferies Group Inc. in New York. “It would seem that if AIG buys those assets, they may have to buy them at a slightly higher price.” Jack Gutt, a New York Fed spokesman, declined to comment today.
Subprime Mortgages
The securities, backed by so-called subprime, Alt-A and other home loans, had a face value of about $39 billion when turned over to the Fed. The figure is now about $31 billion, after homeowners defaulted, moved or refinanced, according to AIG’s disclosures.
Banks seeking to aggregate bids from investors for the portfolio may also buy some of the bonds, which they could keep or sell later, the people said. Bobbie Collins, a spokeswoman for New York-based BlackRock, declined to comment, as did Duncan King of Zurich-based Credit Suisse, Kristin Friel of Barclays Capital, and Mary Claire Delaney of New York-based Morgan Stanley.
AIG expects a yield of as much as 8.5 percent to 9 percent at the price it’s offering, Chief Executive Officer Robert Benmosche told CNBC yesterday. The New York-based insurer hadn’t heard if its bid would be accepted, he said.
Banks and investors expect the Fed may evaluate the merits of selling portions of the portfolio over time rather than holding one auction. Potential bidders said it’s unclear if or when the Fed will sell.
“We’re not sharpening our pencils and trying to put levels on the bonds at this point,” said Tom Sontag, a portfolio manager in Chicago at Neuberger Berman Group LLC, which oversees about $190 billion in assets. “It’s too early in the process.”
‘The Last Look’
Benmosche said in a March 10 letter to the Fed that a single transaction may be best for the Fed.
“I would suspect that AIG may have the benefit of getting the last look,” said Hatcher. “If I was one of the other bidders for the securities, that would be my concern, that I’m going to bid on these and you’re going to go and ask for another dollar from AIG.”
Mark Herr, a spokesman for AIG, declined to comment beyond Benmosche’s remarks. The Financial Times reported March 21 that Barclays was considering a counteroffer.
To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net
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