The Federal Reserve Bank of New York on Tuesday sold the remaining portion of mortgage-backed securities acquired in the 2008 rescue of American International Group Inc.
The sale to a unit of Credit Suisse Group AG means the U.S. government has recovered the entire $19.5 billion loan made at the height of the financial crisis – with interest.
“The completion of the sale of the Maiden Lane II portfolio has resulted in significant gains for the public and marks an important milestone in the wind-down of the extraordinary interventions necessitated by the financial crisis,” New York Fed President William Dudley said in a prepared statement.
Taxpayers will enjoy a net gain of about $2.8 billion from the sale of the entire portfolio, according to the New York Fed.
The bonds, with a current face value of $6 billion, were purchased by Credit Suisse Securities (USA) amid heavy bidding. Other bidders were Royal Bank of Scotland Group’s RBS Securities, Barclays Plc, Bank of America Corp.’s Merrill Lynch broker and Morgan Stanley & Co.
The transaction, which liquidates bonds held in a portfolio known as Maiden Lane II LLC, was prompted by an unsolicited offer from Morgan Stanley to BlackRock Solutions, the investment manager for the portfolio, according to the New York Fed.
Credit Suisse, which in January also bought the first tranche of Maiden Lane bonds with a face value of $7 billion, said “a significant portion” of the securities were already spoken for by clients, adding it plans to distribute the rest in the near future.
Goldman Sachs Group Inc., which bought $6.2 billion worth of the residential mortgage-backed securities earlier this month, was not involved in the New York Fed’s latest auction, said one source.
In the last two auctions, the New York Fed did not reveal sale prices nor the specific bonds, but said on both occasions it represented “good value for the public.”
The bank said on Tuesday that it moved ahead with the final leg of the bond sale “only after determining that the winning bid represented good value for the public.”
Maiden Lane II was created to absorb risky mortgage securities from AIG, helping to prevent the collapse of what was then the world’s largest insurer. In March last year, the New York Fed rejected AIG’s $15.7 billion bid to buy the portfolio, saying it would sell off the bonds over time instead.
Last week, AIG said that it would retain one-sixth of the profit on the sale of the portfolio.
The company said it was required to use any such proceeds to help pay down the U.S. Treasury’s preferred interest in a special purpose vehicle that holds some AIG assets.
After having trouble selling the mortgage securities last year, the New York Fed has had better luck this year as the market for such bonds warmed up.
The collapse of the U.S. housing market was at the heart of the 2007-2009 recession and the global financial crisis.
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