A report released by the Federal Reserve Board shows taxpayers made $9.5 billion through its investment in two facilities used to help provide liquidity to American International Group to prevent its collapse in 2008.

The two facilities are Maiden Lane II, and Maiden Lane III. The report contained information on the facilities as of July 31.

The securities in the two facilities were sold last August, but AIG is now seeking to collect more funds by suing BankAmerica, the successor to Countrywide, which was the original issuer to most of the securities.

The suit is now pending in federal district court in Los Angeles.

Maiden Lane II originally received $19.5 billion from the sale of $39.3 billion in mortgage-backed securities to Maiden Lane II. The AIG insurance subsidiaries agreed to defer receipt of $1 billion of the purchase price, and were paid interest on the $1 billion until it was repaid by the Fed.

According to the Fed report, it ultimately gained $2.847 billion from sale of those securities.

Maiden Lane III originally contained $62 billion face value of collateralized debt obligations backed by mortgage-backed securities of various grades. AIG received $24.3 billion in cash from the sale of those securities to the facility. The Fed made $6.636 billion from the sale of the securities held in that facility.

The Fed ordered AIG to make the owners of the securities whole in the fall of 2008 because AIG’s Financial Products Group had sold credit default swaps (CDS) to guarantee the securities.

But, the owners were paid $24.3 billion through the Fed and AIG put up another $5 billion in cash through a loan to the facility.

The owners of the security repaid in full because AIG had provided them more than $30 billion in cash through margin calls that required AIG to put more money on the table as its credit ratings and the market value of the securities both sunk prior to the Fed takeover, according to Fed officials.

The securities were multi-sector collateralized debt obligations. The CDS were issued by AIG’s Financial Products Group. The repurchases allowed AIGFP to terminate the associated CDS.

The issue is important because Maurice “Hank” Greenberg, former AIG chairman and CEO, is suing the U.S. in Federal Court of Claims in Washington through Starr International primarily based on allegations that the Fed treated AIG differently than other deeply-troubled financial companies during the 2008-2010 crisis period.

The suit has been cleared by the judge hearing the case for trial, probably in August 2014. Starr International owned 13 percent of AIG, and Greenberg was given control of it through a settlement with AIG in 2011.

It is unclear how much AIG ultimately gained from sale of the securities into the facilities.

Even five years or more after the securities were sold, mostly only garnered 30 to 56 cents on the dollar as late as 2012. The sold for that high a price, mostly through auctions because at that price they offered a relatively high yield, and offered the potential for capital gains as the housing market strengthened and the underlying homes securing the mortgages rose in value.

The suit against BankAmerica seeks $7 billion in losses AIG alleged it suffered from sale of the securities in addition to the funds it received from liquidation of the facilities by the Fed.

Maiden Lane II was created to add liquidity to AIG’s 13 life insurance subsidiaries. AIG had collateralized purchase of more than $70 billion of mortgage-backed securities of various grades with high-grade securities held by AIG’s life insurance subsidiaries as reserves.

The loans were all repaid and most of the securities in the two facilities sold by mid-2012. The Treasury Department reimbursed its investments in AIG and acquired the 79.9 percent of its stock in 2011. It sold its entire investment in AIG by the fall of 2012.

The AIGFP unit’s issuance of CDS that at one point totaled $2.77 trillion of obligations was what forced AIG to accept a takeover by the Fed in September 2008.

The Fed originally provided AIG with $85 billion in cash to meet its obligations in return for 79.9 percent of its stock.

AIG was in trouble because it had used a very high credit rating based on its insurance and allied businesses to build its CDS business.

A report by the Pennsylvania Insurance Department in October 2010 indicated that in order to get a high credit rating, AIG had cross-collateralized the reserves and businesses of all its insurance subsidiaries, property and casualty and life, in order to secure the high credit rating used by AIGFP to sell CDS.

According to a Government Accountability Office report in 2011, at one point in 2009 the Fed was considering acquiring all of AIG’s life insurance subsidiaries in order to protect the companies, and, primarily, policyholders.

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Fed Report: Taxpayers Made $9.5B on AIG Investments Related to Bailout

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