The Federal Reserve Bank of New York said it sold the remaining $6 billion of mortgage bonds in its Maiden Lane II LLC portfolio, which were assumed in the government rescue of American International Group Inc.
The New York Fed sold the securities to Credit Suisse Group AG, according to a statement posted on the district bank’s website today. The New York Fed said that taxpayers earned $2.8 billion, including $580 million in interest, on their $19.5 billion loan to the Maiden Lane II vehicle, which was created in 2008 to buy holdings that AIG handed the Fed in exchange for a cash injection.
Today’s sale was prompted by an unsolicited bid from Morgan Stanley for the securities and was the third such sale this year. The New York Fed halted regular and more public auctions last year of about $10 billion after traders blamed the sales for damaging prices in credit markets. The New York Fed used its two previous sales in 2012 totaling about $13 billion to retire its loan to Maiden Lane II.
“The completion of the sale of the Maiden Lane II portfolio has resulted in significant gains for the public and marks an important milestone in the wind-down of the extraordinary interventions necessitated by the financial crisis,” William C. Dudley, president of the New York Fed, said in the statement.
After inviting more than 40 broker-dealers to take part in the auctions last year, the New York Fed has been turning to a more limited number of dealers in response to reverse inquiries. It began selling the bonds piecemeal after rejecting a $15.7 billion bid from New York-based AIG for the entire pool in March.
The sales this year haven’t curbed a rally in home-loan bonds. Typical prices for the most-senior bonds tied to option ARMs have climbed to 55 cents on the dollar from 49 cents in October and November, according to Barclays Capital data. That’s still down from last year’s high of 65 cents in February. Option ARMs allow borrowers to pay less than the interest they owe by increasing their balances.
“This was a significantly better process than what occurred last year,” said Jason Callan, head of structured products at Columbia Management Investment Advisers LLC in Minneapolis, which oversees about $170 billion in fixed income assets. “This puts the concern of these forced sales or liquidations behind the market.”
Barclays, Credit Suisse, Bank of America Corp., Morgan Stanley and RBS Securities Inc. were included in this sale’s “competitive process,” according to the New York Fed’s statement.
“Credit Suisse and its clients are pleased to have won this competitive auction, and happy to be playing a role in the redistribution of these assets,” Steven Vames, a spokesman for Credit Suisse, said in an e-mailed statement. A “significant portion” of the assets has already been allocated to clients, and Credit Suisse plans to distribute the remainder, Vames said.
The portfolio included 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.
The Fed made another loan to help bail out AIG to a vehicle called Maiden Lane III LLC, and was owed about $9.3 billion under that facility as of Feb. 22, according to the New York Fed’s website.