By Karen Brettell and Richard Leong
NEW YORK, April 18 The New York Federal Reserve
said on Wednesday it has asked eight investment banks to bid on
risky assets from its Maiden Lane III portfolio, which was
created during its 2008 bailout of insurer American
International Group (AIG).
This move would trim the U.S. central bank's balance sheet
which about tripled from the emergency measures it has enacted
to help the banking system and the economy since the global
It also signals some confidence that collateralized debt
obligations, a once-fledgling asset class because of its tie to
the U.S. mortgage market, might have finally stabilized after
they were battered since the housing meltdown.
Barclays Capital, Citigroup, Credit Suisse
, Deutsche Bank, Goldman Sachs, Bank
of America's Merrill Lynch broker, Morgan Stanley
and Nomura have been invited to submit bids for the
assets, "based on the strength of their expressions of interest"
in the bonds, the Fed said in a statement on its Web site.
The New York Fed said it opened up the bidding for these
CDOs "in response to several reverse inquiries."
BlackRock Solutions, the investment manager for the Maiden
Lane portfolio, will conduct a bid process for these CDOs, with
all bids due on April 26, though there is no fixed timetable for
any sales, the Fed said.
The value of the MAX CDOs, originally arranged by Deutsche
Bank, in the Maiden Lane III portfolio are based on pools of
commercial mortgage-backed securities. Their tranches carry junk
ratings from Standard & Poor's.
AIG's has a $5 billion interest in Maiden Lane III
The Fed said it will decide whether to sell the assets based
on the strength of the best bid, adding that it will proceed
with the sales only if this "represents good value for the
Maiden Lane III grew out of the purchase of $29.3 billion in
collateralized debt obligations from certain counterparties to
an AIG unit. It was a key part of the $182 billion rescue of the
AIG put $5 billion of equity in the portfolio, which is
accruing interest, and the company is also entitled to a third
of the profits after the Fed's loan that funded Maiden Lane III
The insurer expected an increase in the value of its stake
in Maiden Lane III by about $685 million if the New York Fed
liquidates the portfolio at its estimated fair value, according
to AIG's 2011 10-K filing.
The fair value of the remaining portfolio was around $17.59
billion as of last week.
The New York Fed added that it will seek to make any sales
without disrupting the market, after some analysts blamed the
sale of securities from Maiden Lane II last year for a dramatic
selloff and widening in spreads across securitized products.
It suspended sales from Maiden Lane II when demand started
to fall off and they created a glut in the market.
Since then, improved market sentiment and a dearth of high
yielding assets is likely to aid demand for these riskier bonds,
"The market sentiment is pretty positive at this point.
Given this low interest rate environment, people are chasing
yields right now," said David Yan, head of CDO/CLO research at
Credit Suisse in New York.
The New York Fed said it will provide details on prices paid
for the assets after it sells its last position.
The group of dealers invited to bid on the Maiden Lane III
assets is larger than those for Maiden Lane II, when five firms
were asked to provide bids. These were Barclays, Credit Suisse,
Goldman, Morgan Stanley and RBS Securities.
The Fed has been criticized for limiting the pool of bidders
and requiring large bulk purchases, which critics say limits
price competition and benefits dealers to the detriment of the
"It basically guarantees lower proceeds and plays into the
hands of the big dealer, because they are the only ones that
have the capital to take down a larger trade," said Adam Murphy,
president of Empirasign Strategies in New York, which tracks
trading in securitized debt.
The New York Fed held three auctions in February to sell the
$20.5 billion in risky assets from Maiden Lane II. Credit Suisse
Group AG bought roughly $13 billion worth of the
Maiden II bonds, while Goldman Sachs purchased about $6.2
Credit Suisse also bought the first tranche of Maiden Lane
bonds in January with a face value of $7 billion.