Goldman Sachs has bought billions of dollars of bundled mortgage debt once owned by AIG, the US insurer bailed out by the government in 2008, in a deal that highlights growing investor interest in “toxic” assets that were at the heart of the financial crisis.

The Federal Reserve Bank of New York said on Wednesday that it had sold mortgage securities with a face value of $6.2bn to Goldman. The proceeds from the deal would repay the outstanding amount spent on buying the assets as part of the government bail-out.

Goldman won the auction for the securities from the NY Fed’s Maiden Lane II portfolio, a special purpose vehicle that was set up in 2008 after AIG collapsed. The federal bail-out of AIG was one of the most contentious decisions of the financial crisis.

The latest auction follows last month’s sale of about $7bn of securities from the portfolio to Credit Suisse. The proceeds from the two sales settle the balance on a $19.5bn loan the NY Fed made to Maiden Lane II to buy the securities from AIG.

Credit Suisse won the auction last month even though the bidding process had been prompted by an unsolicited bid for Maiden Lane II securities from Goldman. The latest round of bidding was sparked by an unsolicited offer from Credit Suisse.

Demand for subprime and other risky mortgage debt has risen sharply this year, as investors seek assets with high yields after the Federal Reserve pledged to keep US interest rates low through to late 2014.

This year’s successful auctions contrast with efforts to sell down the Maiden Lane II portfolio last spring. The NY Fed began to sell the portfolio on the open market, but suspended its auctions after lacklustre demand and a drop in the prices for risky mortgage debt.

In addition to Goldman and Credit Suisse, Barclays Capital, Morgan Stanley and RBS Securities also participated in the latest auction.

The NY Fed has made substantial progress in selling off the portfolio of AIG assets, which totalled $39.9bn originally. It could earn money on the sale of the remaining $6bn of assets it holds, because the loan it made to the Maiden Lane II vehicle to buy the assets will be repaid. Additional proceeds from any further sales will be included in the US Federal Reserve’s remittances of income to the Treasury.

William Dudley, president of the NY Fed, said: “I am pleased with the continued interest in these assets and am especially gratified that the New York Fed’s loan to [Maiden Lane] II will be repaid as a result of the sale announced today.”

Net proceeds form the latest sale will be reported as part of the portfolio’s normal reporting schedule on April 16. The price was not disclosed on Wednesday.

Under the process outlined by the NY Fed for selling the Maiden Lane II portfolio, unsolicited bids to buy the AIG assets will result in a competitive auction. The two sales this year have included a small number of dealers who in turn sold the securities to their clients.

In January, at the time of the last sale, Credit Suisse said that the end buyers were a broad mix of investors including banks, insurance companies, real estate investment trusts, hedge funds and private equity companies.

Get alerts on Goldman Sachs Group when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article