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June 14, 2012 1:29 am
The Federal Reserve Bank of New York has auctioned $1.9bn in face value of complex mortgage-related securities in the latest of several sales of assets this year associated with the bailout of American International Group.
Wednesday’s sales were from Maiden Lane III, a vehicle set up with a loan from the New York Fed and equity from AIG as part of the insurer’s rescue.
Jay Wintrob, an AIG executive, said separately on Wednesday that previous auctions this year had already raised sufficient sums to repay the loan, which would be a milestone for both the New York Fed and AIG.
The Maiden Lane III loan is the only outstanding government loan associated with the rescue of the insurer, although the Treasury continues to own around 62 per cent of the company’s shares.
The New York Fed and the US Treasury declined to comment.
As of June 6, the balance on the loan and accrued interest was $3.5bn, but that amount does not reflect some of the proceeds from previous Maiden Lane III sales this year. The sales prices were not disclosed and they occurred at discounts to par, making it difficult to calculate the balance on the loan. Nevertheless, Mr Wintrob, the chief executive of AIG’s life insurance arm, said that sales had reaped enough proceeds to cover the loan.
“With the auctions completed prior to this week, the Fed loan will be fully repaid,” he said.
Repayment of the loan would pave the way for the company to return more capital to investors. After the New York Fed is repaid, AIG is entitled to the next $5.6bn in proceeds, according to Federal Reserve data. Any remaining proceeds are to be split, with a third going to AIG and two-thirds to the New York Fed.
On Wednesday, shares of AIG rose 0.4 per cent to $30.30. They have risen more than 30 per cent this year.
Merrill Lynch Pierce Fenner & Smith, a unit of Bank of America, emerged as the winner in Wednesday’s auction, beating out five rival Wall Street bidders. On Friday, the New York Fed is scheduled to auction another $5bn of securities from Maiden Lane III.
Maiden Lane III bought securities in collateralised debt obligations from large banks to cancel loss-producing derivatives trades at AIG in one of the most controversial aspects of the bailout. Including collateral AIG had posted on the trades, the banks received 100 cents on the dollar in what critics have called a backdoor bailout of Wall Street.
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