N.Y. Fed Sells Remaining Maiden Lane II Securities

NU Online News Service, Feb. 29, 1:16 p.m. EST

The Federal Reserve Bank of New York late Tuesday finally closed out one chapter of the controversial bailout of American International Group by selling the last remaining securities held in the Maiden Lane II facility.

Under the system used to account for such financings, the sale will result in full repayment of the $19.5 billion loan extended by the New York Fed to ML II.

Sale of the final or residual component of the facility meant that the New York Fed made more money selling the securities in Maiden Lane II itself.

Last April, AIG CEO Robert Benmosche made an offer through a letter made public through an 8K securities filing with the SEC to re-purchase the securities held in Maiden Lane II.

The Fed declined and decided to sell the securities itself. The first sale, last June, fell under the amount offered by AIG, according to comments last fall by officials of Trepp LLC, a New York firm which tracks the prices and volume of such instruments.

But, the latest sales on Jan. 19, Feb. 9 and Tuesday, resulted in gains to the Fed, and therefore the government, greater than the offer made by AIG.

AIG's bid promised a $ 1.5 billion profit for taxpayers, excluding accrued interest of $580 million which was included in the Fed's profit calculation.

The latest sale means that the government will have a net gain of approximately $2.8 billion, including $580 million in accrued interest on the loan, the Fed says.

The sale will also send roughly $1.3 billion in proceeds to AIG, which in 2008 provided $1 billion to support Maiden Lane II.

Earlier this month, a bulk sale of bonds to Goldman Sachs Group Inc. ensured that the New York Fed would be fully repaid on its $19.5 billion loan to the vehicle during the crisis.

The latest sale, through auction, was to Credit Suisse Group AG. It bested four other Wall Street dealers in an auction for residential mortgage-backed securities with an unpaid principal balance of $6 billion. The Swiss bank likely paid more than 50 cents on the dollar for the bonds.

According to a spokesman for the Fed, the latest sale involved the residual portion of the financing. Under the deal with AIG, 5/6th of the residual goes to the Fed, and 1/6th to AIG.

The Maiden Lane II facility was originally created in November 2008 to provide cash for AIG.

The securities it held were residential mortgage-backed securities of various grades from prime to sub-prime and had a face value of $39.8 billion.

They were acquired by AIG’s Financial Products unit and collateralized by reserves held by AIG’s life-insurance subsidiaries.

A second facility is still outstanding. Maiden Lane III holds collateralized debt obligations purchased by AIGFP. The original amount funded by the FRBNY was $24.3 billion.

William C. Dudley, president of the New York Fed, says, “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.”


Resource Center

View All »

Contractors General Liability Coverage 102

What is a prior work exclusion? Which option is right for my client? Why do...

Sign up today to get a 50% matching credit -...

Insurance marketing sometimes seems like it's a game of swings and misses, but we're here...

Guide: 5 Steps to Selling Cyber

Cyber risk and data security is on the agenda of every business owner and executive....

Citation Correlation

Do rigger and signalperson qualifications correlate with the cause of crane and rigging accidents? ...

Complete Guide to Electronic Signatures in Property & Casualty Insurance...

In property and casualty insurance, closing new business quickly is key. Learn how to leverage...

INSTANT ACCESS: Complimentary Sales Closer Questionnaires

Help property owners or managers compare your commercial residential property insurance coverage vs. the competition....

Determining Vacant Property Perils and Valuations

Are your clients fully covered for Vacant Properties? In this economic climate, your insureds may...

Risk Management for Law Firms

This package of 3 concise risk management articles offers straightforward content and practical suggestions law...

Guide: Top 15 E&O Risks-And How To Avoid Them

Accidents happen. But when it's an errors and omissions oversight, that accident can open your...

We'll Show You How to Reach Your Sales Goals

Whether you work alone or have a team of agents working for you, we can...

PropertyCasualty360 Daily eNews

Get P&C insurance news to stay ahead of the competition in one concise format - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.