Bloomberg News

Fed Sells CDOs From AIG to Barclays, Deutsche

April 26, 2012

The American International Group (AIG) building, left, in New York. Photographer: Daniel Acker/Bloomberg

The American International Group (AIG) building, left, in New York. Photographer: Daniel Acker/Bloomberg

(Corrects Fed’s value of CDOs in sixth paragraph.)

The Federal Reserve Bank of New York said it sold $7.5 billion of collateralized debt obligations linked to commercial mortgages to Barclays Plc (BARC) and Deutsche Bank AG. (DBK)

The joint winning bid “represents good value for the public and significantly exceeds the original price” the central bank paid for the assets, New York Fed President William C. Dudley said today in a statement on the regional bank’s website.

The New York Fed said on April 18 it was inviting eight broker-dealers to submit bids at auction after receiving “several” unsolicited requests to purchase the so-called MAX CDOs, which were held in its Maiden Lane III LLC portfolio.

Three teams of Wall Street firms were competing for the debt, which was assumed in the 2008 bailout of American International Group Inc. (AIG:US), according to people familiar with the transaction. Citigroup Inc. (C:US), Credit Suisse Group AG (CSGN) and Goldman Sachs Group Inc. (GS:US) also joined forces, as did Bank of America Corp. (BAC:US), Morgan Stanley (MS:US) and Nomura Holdings Inc. (8604)

Banks combined resources to reach more investors and reduce risk, in contrast with sales from prior Maiden Lane portfolios composed of home-loan bonds, said Richard D’Albert, co-chief investment officer at Seer Capital Management LP. The winning consortium had to buy the entire portfolio, though the firms may sell the CDOs intact or break them down to sell the underlying securities.

Dubbed MAX

The CDOs, dubbed MAX by Deutsche Bank when they were issued in 2007 and 2008, are composed of securities of varying ratings culled from 103 commercial-mortgage bond offerings. The pair was valued by the Fed at $4.2 billion in December, according to the district bank’s website.

AIG shares extended gains after the announcement, rising 56 cents, or 1.7 percent, to $33.39 at 12:48 p.m. in New York trading.

While this was the first such auction from the Maiden Lane III portfolio, the New York Fed earlier finished selling all the bonds in its Maiden Lane II LLC vehicle in February. Maiden Lane II was created to hold residential-mortgage assets assumed in AIG’s bailout.

The New York Fed began unloading the Maiden Lane II debt last year through regular and more public auctions, which it halted after traders blamed the sales for damaging prices in credit markets. The central bank later completed selling the securities by turning to a more limited number of dealers in response to unsolicited bids.

The New York Fed said in February that taxpayers earned $2.8 billion on their $19.5 billion loan to the Maiden Lane II vehicle.

To contact the reporters on this story: Caroline Salas Gage in New York at csalas1@bloomberg.net; Sarah Mulholland in New York at smulholland3@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net Christopher Wellisz at cwellisz@bloomberg.net


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Companies Mentioned

  • AIG
    (American International Group Inc)
    • $54.7 USD
    • -0.41
    • -0.75%
  • C
    (Citigroup Inc)
    • $49.6 USD
    • 0.25
    • 0.5%
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