The Federal Reserve Bank of New York is considering selling assets in its Maiden Lane III LLC portfolio, which were assumed in the government bailout of American International Group Inc., the district bank said today.
“The change in the investment objective for Maiden Lane III reflects a strategic decision to explore possible sales of some of the assets in the portfolio in light of improving market conditions and the success of the Maiden Lane II sales,” Jack Gutt, a spokesman for the New York Fed, said in an e-mailed statement.
The New York Fed is seeking to accelerate the repayment of its loan to the Maiden Lane III vehicle after completing the sale this year of the assets in its Maiden Lane II LLC portfolio, another pool of debt assumed in AIG’s rescue. The central bank was owed about $9 billion under its loan to Maiden Lane III as of March 28, according to the New York Fed website.
AIG and the Fed have benefited from the rebound in mortgage-linked assets, such as those assumed in the bailout. The insurer may use proceeds from sales of Maiden Lane III assets to help buy back more stock from the U.S. Treasury Department, Josh Stirling, an analyst for Sanford C. Bernstein & Co., said in a note to clients today. AIG advanced 5.3 percent to $32.52 at 4:02 p.m. in New York, the most since February.
“The Fed will only transact if it deems that a particular transaction represents good value, is done competitively and is not market disruptive,” Gutt said. No auctions were announced.
After selling the last group of bonds in the Maiden Lane II pool in February, the New York Fed said that taxpayers earned $2.8 billion on their $19.5 billion loan to that vehicle. It was created in 2008 to buy holdings that AIG handed the Fed in exchange for a cash injection.
AIG used proceeds from Maiden Lane II to reduce bailout obligations to the Treasury. Asset sales have helped AIG pay down its government lifeline, which swelled to $182.3 billion. A Treasury share sale last month cut the government’s stake to 70 percent (AIG) of AIG’s common stock.
Mark Herr, a spokesman for the New York-based insurer, declined to comment on the Fed’s plan, which was reported earlier by CNBC.
The Fed committed as much as $52.5 billion in 2008 to buy mortgage-related assets that were owned or backed by AIG. The insurer invested a combined $6 billion in two Fed facilities, and is entitled to a portion of any profits after the regulator recovers its investment. Maiden Lane II held mortgage-backed assets AIG had purchased through its securities-lending program.
Maiden Lane III unwound credit-default swaps AIG wrote to protect counterparties against losses on mortgage-backed securities. The facility bought the underlying assets that AIG insured for banks including Goldman Sachs Group Inc. (GS) and Societe Generale SA (GLE), sparing the Wall Street firms from any losses. Lawmakers criticized the payments as a “backdoor bailout” of the companies.