Filed Under:Markets, Regulation/Legislation

Fed Sells AIG MBS to Credit Suisse, Firm Sells Portion on Market

NU Online News Service, Jan. 23, 2:36 p.m. EST

The market is apparently strengthening for the risky residential mortgage-backed securities purchased by the Federal Reserve Board in early 2009 as part of its bailout of American International Group.

This is in contrast to last year, when the Fed halted sale of the securities in June because the sales caused the prices of sub-prime MBS to tumble, according to recent articles in The New York Times and the Wall Street Journal.

The securities are held in a facility known as Maiden Lane II.

Those auctions, over a span of three months, helped trigger a tumble in market prices of residential and commercial mortgage securities, according to officials of Trepp Associates, A New York City firm which tracks the value of mortgage-backed securities.

The New York Fed halted the sales in June after raising $4.7 billion in cash for bonds with a face value of nearly $10 billion.

In a press release, the Fed Thursday said it sold $7.014 billion in face amount of assets from its Maiden Lane II LLC (ML II) portfolio through a competitive process to Credit Suisse Securities (USA) LLC. The market speculated that CSS acquired the securities for more than $3 billion in cash.

And, Jack Grone, a spokesman for CSS, confirmed today that a significant portion of the securities have been sold to a market that included banks, insurers, hedge funds, private-equity portfolios and real-estate investment trusts, among others.

The Fed seemed to confirm that the market for the securities was strengthening through a statement from William C. Dudley, president, which stated, “I am pleased with the strength of the bids and the level of market interest in these assets.”

The Fed acquired the securities in 2009 as part of the bailout of AIG. The securities were placed in two facilities: Maiden Lane II and Maiden Lane III.

AIG sought to reacquire the facilities last year, but the Fed declined despite a direct plea from AIG CEO Robert Benmosche.

When AIG got into trouble, in September 2008, it initially got $85 billion in cash from the Federal Reserve Bank ofNew Yorkin return for 79.9 percent of its stock.

The Fed and AIG later determined that more aid was necessary and the creation of theMaiden Lanefacilities was one of the means by which the federal government provided further assistance.

The Fed says in its statement that the sale to CSS was prompted by an unsolicited offer from Goldman Sachs & Co. to BlackRock Solutions, the investment manager for ML II, in January 2012, to buy a portion of ML II assets.

The four broker-dealers included in the competitive process were Barclays Capital Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

“The New York Fed decided to move forward with the transaction only after determining that the winning bid represented good value for the public,” the Fed statement says.

“This transaction substantially reduces the ML II portfolio and loan at a desirable price,” the Fed says.

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