Deutsche Bank AG, Barclays Plc and Credit Suisse Group AG are preparing bids for a $7.49 billion mass of real estate debt assumed by the Federal Reserve Bank of New York in 2008, according to people familiar with the potential sale.
It will probably take several weeks to select the winning bid, said the people, who declined to be identified because the process isn’t public. Goldman Sachs Group Inc. has also approached investors about preparing a bid, other people said.
The New York Fed said last week that it’s considering selling assets in its Maiden Lane III LLC portfolio. The holdings, taken on in the 2008 bailout of American International Group Inc., include two collateralized debt obligations, or CDOs, with a face amount of $7.49 billion that are tied to commercial property loans issued by Deutsche Bank in 2007 and 2008.
Investors in the $600 billion commercial-mortgage bond market are waiting to see if two transactions in Maiden Lane III, which bundle securities culled from 103 deals, will be sold intact or broken down into pieces, according to a March 9 report from Jefferies Group Inc. The potential deluge of bonds has weighed on the market, exacerbating a slide in values as Europe’s debt crisis flares and U.S. jobs numbers miss forecasts.
Renee Calabro, a spokeswoman for Deutsche Bank, Brandon Ashcraft of Barclays, Steven Vames of Credit Suisse and Michael DuVally of Goldman Sachs, all in New York, declined to comment. Andrea Priest, a spokeswoman for the New York Fed, also declined to comment.
Relative yields on top-ranked securities tied to shopping malls, skyscrapers and hotels climbed to 204 basis points yesterday after reaching 206 basis points April 10, a six-week high, according to a Barclays Plc index. It is up from a more than four-year low on March 27, the data show.
The New York Fed halted regular and more public auctions of mortgage securities held by Maiden Lane II LLC, a separate portfolio, last year after traders blamed the sales for damaging prices in credit markets. The district bank ultimately completed selling the entire portfolio this year after opting to hold auctions with a more limited number of dealers in response to unsolicited bids for assets.
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. Credit Suisse and Goldman Sachs won those auctions, comprised of securities backed by residential mortgages.
Maiden Lane III, with a face value of $47.7 billion, was estimated to be worth $17.8 billion as of December last year, according to the Fed’s website. In addition to commercial-mortgage CDOs valued at $4.8 billion, the holdings include $12.7 billion in asset-backed CDOs.
The vehicle 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, sparing the Wall Street firms from any losses. Lawmakers criticized the payments as a “backdoor bailout” of the companies.