NU Online News Service, July 17, 3:15 p.m.EDT

American International Group will gain approximately $2.1billion over its initial $5 billion investment in Maiden Lane IIIwhen the Federal Reserve Board of New York completes its sale ofsecurities held in the facility.

The Fed created Maiden Lane III in 2008 to cancel credit-defaultswaps that AIG had sold to protect counterparties against losses.The insurer needed to be rescued after it was unable to meetcollateral calls from banks that included Goldman Sachs Group Inc.,Deutsche Bank, Paribas and Societe Generale SA.

The initial investments in Maiden Lane III consisted of $24.3billion from the Fed and $5 billion from AIG.

However, the extra $2.1 billion AIG will see above the $5billion it paid into Maiden Lane III does not necessarily representa gain on the company's investment, an analystsays, because the company had already taken markdowns ofover $30 billion on its earnings to reflect payment of guaranteesassociated with the securities held in the facility.

Under the agreement in 2008 with the New York Fed that createdMaiden Lane III, AIG gets its equity stake returned, interest onthe loan, plus one-third of additional proceeds from the sale ofthe securities beyond the $24.3 billion invested by the Fed. AIGestimates that it has received $600 million in interest on itsloan.

John Nadel, an analyst at Sterne Agee in New York, estimatesthat the Fed is getting between 30 percent and 50 percent of theface value of the securities contained in the portfolio throughsales to various investment-banking firms.

He adds that the latest disclosures from the Fed and AIG confirmhis estimate that the total proceeds to AIG from Maiden Lane IIIasset sales will ultimately total about $7.1 billion, although fulldetails are not expected until AIG reports its second-quarterearnings Aug. 2.

Nadel says the Fed has announced bid dates for 20 underlyingCollateralized Debt Obligations with face amount totaling $11.9billion.

Bids are due for the first $3.9 billion of face amount on July19, for another $3.5 billion on July 24, and the last $4.5 billionon July 31.

Nadel said that assuming average price-to-face of 30 percent,these auctions should result in total proceeds of $3.6 billion,with one-third of that, or $1.2 billion, going to AIG.

In its statement, AIG says it has already received $427 millionin residual profits so far.

According to an AIG statement, the maximum support authorized bythe U.S. government to AIG reached $182 billion in 2008, of which$21 billion was unused or expired.

Together with repayments, withdrawals, exchanges, sales, andother actions, total outstanding government support to AIG hasdecreased that amount by approximately 83 percent, or $152 billion,with approximately 1.06 billion shares of AIG common stock owned bythe U.S. Department of the Treasury as the remaininginvestment.

It should be noted that the $152 billion decrease only includesa reduction of original authorized support and not the Fedfacilities, Maiden Lane II and Maiden Lane III.