N.Y. Fed Sells Off $7B in Former AIG Assets

The Federal Reserve Bank of New York said it has sold $7.01 billion in face amount of assets from Maiden Lane II LLC, one of the limited liability companies that it created to take on the troubled assets of American International Group in 2008.

Credit Suisse Securities (USA) LLC won the $7.014 billion in assets through a competitive bidding process. The New York Fed had directed BlackRock Solutions, the investment manager for Maiden Lane II, to conduct the competitive sale after Goldman Sachs & Co. made an unsolicited offer in January to buy a portion of the assets.

The four broker-dealers involved in the competitive process were: Barclays Capital Inc., Credit Suisse, Goldman Sachs and Merrill Lynch, Pierce, Fenner & Smith Inc. The New York Fed selected the broker-dealers based on their previous expressions of interest for large parcels of the portfolio.

In 2011, the New York Fed began to sell off some of the assets of Maiden Lane II, which are mostly residential mortgage-backed securities, but halted the sale in the summer citing poor market conditions (Best's News Service, July 1, 2011).

Last year, AIG had offered $15.7 billion to buy back the assets, but the Fed rejected the idea on March 30, 2011, and opted to sell them at auction instead. At that time, the Fed said it believed conditions were right for more extensive asset sales in light of improved conditions in the secondary market for RMBS, and a high level of interest by investors. The assets were being auctioned off in small blocks, and on April 11, 2011, the FRBNY listed $1.2 billion in current face amounts of RMBS assets up for auction in the open market (Best's News Service, April 11, 2011).

The New York Fed, through BlackRock Solutions, will continue to sell the remaining securities in the Maiden Lane II portfolio individually and in segments over time as market conditions warrant through a competitive sales process, while taking appropriate care to avoid market disruption, the Fed said. There will be no fixed timeframe for the sales, and the Fed said it will only sell the assets if it views the bid as a good value for the public.

When Maiden Lane II was created, the New York Fed's goal was to take the troubled assets from AIG's balance sheet and loan the company cash to conduct business. In addition to Maiden Lane II, the New York Fed created Maiden Lane III, which holds credit default swaps, as part of the $182 billion federal bailout of AIG.

Most of AIG's insurance subsidiaries currently have Best's Financial Strength Ratings of A (Excellent).

Early afternoon on Jan. 26, AIG's stock was trading at $25.21 a share, down 0.4% from the previous close.

(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)