The Federal Reserve Bank of New York is seeking offers for more of the mortgage bonds assumed in the government rescue of American International Group Inc. (AIG) after a potential buyer approached the central bank, three people with knowledge of the matter said.
The auction, which may come as soon as next week, may involve about $6 billion of debt, said one of the people, who declined to be identified because the potential transaction is private. The central bank said it sold $7.01 billion in face value of the securities held by its Maiden Lane II vehicle on Jan. 19 to Credit Suisse Group AG after being approached with a bid by Goldman Sachs Group Inc. (GS)
The New York Fed ended in June a plan to offload the assets through a series of auctions, following sales of about $10 billion in face value of mortgage securities. The holdings had dwindled to about $21 billion when the auctions were halted after investors and traders blamed them for causing a slump in prices. Values gained last month following reports on the offering and its completion.
The last sale as well rising prices “certainly has stirred interest in a sector that had been sorely lacking it” the previous quarter, Chris Flanagan and Tim Isgro, New York-based strategists at Bank of America Corp., said in a Jan. 29 report. At a securitization conference last month, the New York Fed’s decision to sell the assets and “the strong interest and bids it received” was a popular topic, they wrote.
Jack Gutt, a spokesman for the New York Fed, declined to comment.
By the day after the last sale, Credit Suisse had already placed a “significant” portion of the securities with clients, Steven Vames, a New York-based spokesman for the firm, said in a telephone interview Jan. 20. The bank was seeking to distribute the rest, he said, without disclosing the amounts.
The New York Fed started selling the bonds piecemeal after rejecting a $15.7 billion bid from New York-based AIG for the entire pool in March. The portfolio includes securities backed by the types of home loans with some of the highest default rates, such as so-called subprime, Alt-A and option adjustable- rate mortgage debt.
Typical prices for the most-senior bonds tied to Alt-A (BBMDADLQ) ARMs tumbled from last year’s high of 68 cents on the dollar in February to 48 cents in November, before rising to 50 cents last week, according to Barclays Capital data. Alt-A debt falls between prime and subprime.