The residual portion of American International Group’s (AIG) mortgage-backed securities in the Maiden Lane III LLC portfolio, held by the Federal Reserve Bank of New York (“Fed”), has been sold, according to sources. The New York Times revealed that the buyers include Credit Suisse Group (CS), Citigroup Inc. (C), Merrill Lynch of Bank of America Corp. (BAC), the Royal Bank of Scotland Group Plc (RBS) and Morgan Stanley (MS).
Fed has divulged that the sale will result in net gains of $6.6 billion to the taxpayers of New York, taking the cumulative gain on all the assets of AIG to $17.7 billion. AIG will receive one-third of the sale proceeds, as per contract.
Maiden Lane III was created in 2008 to rescue the company from a financial downturn by furnishing it with $24.3 billion in cash, while AIG held a $5 billion equity stake in it. AIG, in July 2012, received the full repayment of $5 billion against its equity interest in Maiden Lane III along with contractual and additional distributions of $1.1 billion.
The portfolio of assets, comprising collateralized debt obligations (CDOs) to terminate the credit default swaps (CDS), was the last of the assets that was unpaid under the loan issued by the government. Under the financial rescue program, the Treasury Department provided a lifeline of $68 billion to AIG along with $144 billion from the Fed.
The asset sale frees AIG from all obligations tied to the Fed associated with the financial bailout. The company had repaid its entire outstanding loan, along with interest, under the Maiden Lane III fund to the Fed in June, this year. However, the U.S. Treasury still owns 53% of the company’s outstanding shares.
The Treasury had sold about 189 million shares of AIG for $5.75 billion in August 2012, leaving it with 871.1 million shares. However, this is a small fraction compared to the 92% stake that the Treasury held in May 2011.
AIG currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We maintain our long term ‘Neutral’ recommendation on its shares.
AMER INTL GRP (AIG): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
ROYAL BK SC-ADR (RBS): Free Stock Analysis Report
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