April 4, 2012 / 7:11 PM / 7 years ago

Fed mulls Maiden Lane III asset sales

NEW YORK (Reuters) - The Federal Reserve is considering possible sales of assets from its Maiden Lane III portfolio, which was created during the bailout of insurer American International Group (AIG) (AIG.N), a New York Federal Reserve spokesman said on Wednesday.

The Federal Reserve Building stands in Washington April 3, 2012. REUTERS/Joshua Roberts

Maiden Lane III grew out of the purchase of $29.3 billion in collateralized debt obligations from certain counterparties to an AIG unit.

Back in February, the Fed completed the sale of all the remaining securities from its Maiden Lane II portfolio, which had $20.5 billion worth of risky mortgage bonds owned by several AIG insurance subsidiaries.

“The change in the investment objective for ML III reflects a strategic decision to explore possible sales of some of the assets in the portfolio in light of improving market conditions and the success of the ML II sales. The Fed will only transact if it deems that a particular transaction represents good value, is done competitively and is not market disruptive,” a Fed spokesman said in a statement.

It is unclear on the timeline when the sales will occur and the way the securities will be sold.

“They are looking carefully to extricate themselves from these assets in an orderly fashion without disrupting the market,” said Richard DeKaser, an economist with The Parthenon Group in Boston. “This has always been a short-term stop-gap, not a long-term solution.”

The New York Fed held three auctions to sell the assets from Maiden Lane II earlier this year. Credit Suisse Group AG CSGN.VX bought roughly $13 billion worth of the Maiden II bonds, while Goldman Sachs (GS.N) purchased about $6.2 billion.

AIG has $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 is repaid.

As of last week, the fair value of the remaining portfolio was $17.46 billion and the outstanding principal and interest owed to the Fed was about $9 billion.

The sharp rise in AIG’s shares will benefit the U.S. Treasury Department, which still holds 70 percent of AIG’s common stock after two share sales in May 2011 and March 2012.

AIG shares were up 1.9 percent late Wednesday afternoon at $32.80 after touching $32.99, the highest since mid-April 2011.

Reporting by Richard Leong and Ben Berkowitz; Editing by James Dalgleish

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