NU Online News Service, July 3, 8:00 a.m.EDT

American International Group will accrue between $3.8 billionand $5.8 billion as a result of the recent successful sale by theFederal Reserve Board of securities held in the Maiden Lane IIIfacility, according to analysts at Sterne Agee in New York.

In an investor's note Friday, Sterne Agee analysts John M.Nadel, Dan Farrell, Alex Levine and Nitin Chhabra also estimatedthat $20 billion face amount of collateralized debt obligationsbacked by mortgage-backed securities of various grade remain in thefacility after the latest sales in a favorable market.

The analysts estimate the $3.8 billion/$5.8 billion return toAIG is based on the insurer's $5.6 billion equity stake in thefacility, plus $200 million more that could accrue to AIG becauseunder the original agreement with the Fed, AIG gets one-third ofthe money gained from the sale of securities above its equitystake.

The analysts estimate that the securities, based on recentsales, will yield 30 to 50 percent of face value.

The approximate face value of the securities held in the MaidenLane III portfolio was $62.1 billion. It reflected markdowns invalue AIG had already taken against its earnings.

Maiden Lane III was used to cancel credit-default swaps that AIGhad sold to protect counterparties against losses. The insurerneeded to be rescued after it was unable to meet collateral callsfrom banks that included Goldman Sachs Group Inc., Deutsche Bank,Paribas and Societe Generale SA.

The Fed initially provided AIG with $85 billion in cash inSeptember 2008 in exchange for 79.9 percent of its stock.

It later loaned AIG additional cash by taking securities held byits various subsidiaries as collateral.

The analysts said that the New York Fed successfully auctionedoff about $7.4 billion of assets within Maiden Lane III over thepast week.

The latest sale of Maiden Lane III securities fully repaid theFed loan.

"We estimate aggregate face amount of securities sold, since theNY Fed's loan was fully repaid, totals about $12.5 billion(includes assets sold on June 15, 25 and 28)," the analysts said intheir investment note.