The remnants of securities contained in facilities created bythe Federal Reserve Bank of New York to help bail outAmerican International Group in 2008 were sold today, a keymilestone in the company's efforts to end the government's equityinterest in AIG.

Today's sale of the remaining $3.4 billion face amount ofcollateralized debt obligations backed by mortgage-backedsecurities held in the Maiden Lane III facility “marks the end ofan important chapter, our assistance to AIG, that was undertaken tostabilize the financial system in the midst of the financialcrisis,” William Dudley, president of the New York Fed, says in astatement.

Analysts at Sterne Agee in New York project that AIG will gainperhaps $2.9 billion above the $5 billion it paid into Maiden LaneIII, up from an earlier estimate of $2.1 billion because interestin the securities is high as they carry far higher yields thancurrently offered through the market.

That does not necessarily represent a gain on the company'sinvestment, an analyst says, because AIG had already takenmarkdowns of over $30 billion on its earnings to reflect payment ofguarantees associated with the securities when the company turnedthem over to the Fed in late 2008.

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 sale of thesecurities beyond the $24.3 billion invested by the Fed. AIGestimates that it has received $600 million in interest on itsloan.

The prior securities sold from the Maiden Lane III portfolioyielded 56 percent of face value. It was not announced how much theFed received for the last batch of securities.

But Dudley says the sale will result in a net gain forthe benefit of the public of approximately $6.6 billion, including$737 million in accrued interest on the New York Fed's loan to MLIII.

In its August 6 earnings conference call with analysts, AIGpresident and CEO Robert Benmosche said AIG had purchasedapproximately $7.1 billion of the securities through the Fedauctions.

Today's announcement on ML III follows the successful wind-downof Maiden Lane II in February and the January 2011 termination ofthe New York Fed's extension of credit to AIG, which producedapproximately $8.2 billionin interest and fees.

When taken together, the total net profit to taxpayers from theNew York Fed's assistance to AIG and AIG-related facilitieswas $17.7 billion, Dudley says.

The Federal Reserve Bank of New York provided a creditline of $182 billion in Sept. 2008, after it became clear thatmargin calls on credit default swaps issued by a unit of AIG couldpossibly force the company into bankruptcy. In return for the cash,AIG gave the FRBNY 79.9 percent of its equity.

Another key step in ending the government's involvement in AIGis likely to occur early next month, when AIG is expected to offerthe remaining 19 percent of American International Assurance, itsAsian life insurance subsidiary, to the public. That is expected toyield $7.5 billion in cash, part of which AIG will likely to use tobuy back stock in the company held by the Treasury Department,according to analysts.

Sterne Agee analysts say the sale, through an IPO, is likely tobring federal ownership of AIG from the current 53 percent to lessthan 50 percent.