NU Online News Service, March. 11, 3:41 p.m. EST
American International Group has offered to buy mortgage-backed securities held by the Federal Reserve Bank of New York for $15.7 billion.
The high-yield instruments, backed by residential mortgages, were held before the fall of 2008 in AIG's life subsidiaries and sold to the FRBNY to increase liquidity when the company was struggling to stay in business.
The securities are being held in Maiden Lane II, an investment facility financed primarily by a loan from the FRBNY.
The original value of the securities when sold to the FRBNY was $20.5 billion. AIG officials said in a securities filing that, since the original transaction was executed in December 2008, Maiden Lane II has paid the FRBNY interest incurred by, and reduced the principal balance of, the senior loans. The securities are now worth $15.9 billion, according to the filing.
According to an AIG securities filing late Thursday, if the FRBNY accepts the offer, the loans that the Fed made to Maiden Lane II will be repaid in full, with interest, and the FRBNY will realize a profit of approximately $1.5 billion on its residual equity interest in Maiden Lane II.
In addition, according to the filing, the total outstanding assistance to AIG from the U.S. Government will be reduced by approximately $13 billion to a total of approximately $26 billion.
AIG is making the move to simplify its balance sheet and increase the yield on its investments in anticipation of beginning to sell off the government's current 92.1 percent interest in AIG's common stock, likely in May.
The FRBNY issued a statement this morning confirming that it has received the offer to repurchase the securities.
"The Fed has been aware of AIG's interest in those assets for some time," the statement said.
"Any decision on a possible disposition of these assets will be made in a way that maximizes the proceeds to the taxpayer and that is consistent with the goal of fostering financial stability," the FRBNY statement said.
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