Credit Suisse Group AG (CSGN), Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS) are teaming up to bid on $7.49 billion of commercial-real estate securities the Federal Reserve Bank of New York took on in the 2008 rescue of American International Group Inc., according to three people with knowledge of the auction.
The group expects to distribute its preliminary price estimates tomorrow on the debt, composed of two collateralized debt obligations issued by Deutsche Bank AG (DBK) in 2007 and 2008. Final bids are due on April 26 by 9 a.m. in New York, said the people, who declined to be identified because the negotiations are private.
The New York Fed invited eight broker-dealers to compete for the so-called MAX CDOs after receiving “several” unsolicited bids for the holdings in its Maiden Lane III LLC portfolio, according to an April 10 statement. The other banks invited to bid are Barclays Plc (BARC), Deutsche Bank AG, Bank of America Corp. (BAC), Morgan Stanley (MS) and Nomura Holdings Inc.
Steven Vames, a spokesman for Credit Suisse, Goldman Sachs’s Michael DuVally and Citigroup’s Scott Helfman declined to comment.
The CDOs could be sold intact or broken into pieces, though an interest-rate swap contract with Barclays would need to be paid out to access the underlying bonds, eating into profits, JPMorgan Chase & Co. (JPM) analysts said in a report last week. The consortium of the three banks is not looking to break up the deals, the people said.
The two CDOs, which bundle securities culled from 103 commercial mortgage bond deals, are estimated by the Fed to be worth $4.8 billion as of December, according to the district bank’s website.
The Fed’s Maiden Lane vehicle unwound credit-default swaps that AIG had sold to protect counterparties against losses on mortgage-backed securities. The facility bought the underlying assets that AIG insured for banks, sparing the Wall Street firms from any losses. Lawmakers criticized the payments as a “backdoor bailout” of the companies.
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