April 23, 2012 / 7:43 PM / 5 years ago

Citi, Goldman, Credit Suisse prep joint Maiden Lane III bid

NEW YORK, April 23 (Reuters/IFR) - Citigroup, Goldman and Credit Suisse plan to make a combined bid to purchase the assets of Maiden Lane III, a portion of the risky assets the Federal Reserve acquired when bailing out insurance giant American International Group (AIG.N) in 2008, according to people familiar with the plan.

The New York Fed last Wednesday said it invited eight investment banks to submit bids for the debt, which is backed by commercial mortgage-backed securities, "in response to several reverse inquiries" for the assets.

Citi (C.N), Goldman (GS.N) and Credit Suisse CSGN.VX are joining forces to submit a combined bid for the bonds, which they believe will be more competitive than acting individually, sources familiar with the plan said on Monday.

The debt in the Maiden Lane III portfolio is known as the MAX CDOS, and the deals were originally arranged by Deutsche Bank. The fair value of the remaining portfolio was around $17.30 billion as of last week.

BlackRock Solutions, the investment manager for the Maiden Lane portfolio, will conduct a bid process, with all bids due on April 26, though there is no fixed timetable for any sales, the Fed said last week.

Market participants attributed the plan by the three banks to bid jointly to a desire to beat out Deutsche Bank (DBKGn.DE), and Barclays Capital (BARC.L), which were also invited to bid on the securities and are seen as having a vested interest in acquiring the bonds as they already have a stake in the deals.

Deutsche Bank already owns junior tranches of the collateralized debt obligation (CDO) on offer and if it also purchases the senior parts it may hold majority ownership in the structure.

That would help the bank to break the deal down into the individual CMBS backing the structure, said people familiar with the bank's holdings.

The individual CMBS backing the CDO are valued in the markets at more than the tranches themselves.

Barclays, meanwhile, is counterparty to a swap that is tied to the CDO, and this swap would also need to be unwound before the deal could be "unlocked" and broken into the individual CMBS assets, market participants said.

Representatives for Citi, Goldman, Credit Suisse, Barclays and Deutsche Bank all declined to comment.

Other banks invited to bid on the deal include Bank of America's Merrill Lynch broker (BAC.N), Morgan Stanley (MS.N) and Nomura (9716.T).

All or Nothing

The Fed and BlackRock have been criticized for limiting the pool of bidders for the Maiden Lane assets by requiring the buyer to take the entire deal, which requires a larger balance sheet than many would-be bidders have.

Instead, some argue that BlackRock should break the deal down and auction the underlying securities individually.

"If Blackrock really wanted to recoup maximum proceeds for the taxpayer, they'd look into collapsing the CDO themselves, and auctioning off the individual bonds," said Adam Murphy, president of Empirasign Strategies in New York, which tracks trading in securitized debt.

The Fed has also yet to disclose prices it has received for the Maiden Lane assets. It said last week that it will reveal prices after it has sold its last position.

The Fed added that 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 public."

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 insurance company.

Additional reporting by Richard Leong; editing by M.D. Golan

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