The New York Federal Reserve (Fed) reported that it sold American International Group Inc.’s (AIG) Maiden Lane II, an investment portfolio containing residential mortgage-backed securities (RMBS) that it had acquired during the height of the financial crisis.
Accordingly, yesterday, Fed sold 8 bonds for $534.1 million, while on Wednesday, Fed had offered 42 bonds but could unload only 37 bonds worth $626.1 million. Earlier last week, AIG had bought 42 bonds from Fed, carrying a face value of $1.3 billion, although 52 bonds were offered for sale. The face value was, however, less than the $1.5 billion notional value of all the bonds put up for auction. Nevertheless, the face amount before last week’s sale topped $30 billion.
The bonds sold are part of a portfolio of 800 residential mortgage-backed securities held in a special purpose vehicle called Maiden Lane II, one of the several government vehicles set up during the financial crisis to buy billions of dollars in mortgage securities from AIG.
In 2008, the Fed had put $20 billion into Maiden Lane to help buy residential mortgage-backed securities from AIG, which had a face value of $39.5 billion at that time.
At that time, the sub-prime mortgage market was essentially frozen and these assets were high-yielding and are most likely selling to private equity groups, hedge funds and insurance groups.
The fair value of the portfolio at the end of 2010 reached $15.9 billion, according to the Fed’s website. However, Fed recently rejected the AIG’s bid of $15.7 billion to buy back the portfolio.
The Fed reasoned on March 30 that the public interest in maximizing returns and maintaining market stability would be better served by selling the assets competitively. Currently, the Fed has not disclosed its plans for its next auction, but it has plans to divulge more information on the sales.
Each month, the Fed will disclose the number and type of bonds sold, but not the price paid. Every quarter it will provide a total dollar figure of the assets sold along with the names of firms that bought the securities.
Furthermore, the Fed will not be disclosing the amount these firms paid it until all of Maiden Lane II’s assets are sold. Within three months of the final sale, the Fed will disclose who bought what securities, the price they paid and the price that Fed paid when it bought the securities from AIG in 2008.
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