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Barclays Considers Bid for US Securities

Justin Baer HKSCKPVIamp; Helen Thomas, Financial Times
Tuesday, 22 Mar 2011 | 2:58 AM ET

Barclays is among a group of investors weighing a rival bid for a portfolio of mortgage-backed securities that has already drawn a $15.7 billion offer from AIG, people familiar with the matter said.

The securities are owned by the Federal Reserve Bank of New York and housed within Maiden Lane II, one of the special-purpose vehicles created as part of the insurer’s $180 billion rescue during the financial crisis.

AIG, which wants to buy back the assets to reduce its obligations to the government while finding a higher-yielding use for its cash, went public with its bid earlier this month after the New York Fed did not respond to a preliminary offer made in December.

The stalemate comes as the US Treasury prepares to sell as much as $20 billion stock, the first step in its plan to reduce the government’s 92 percent stake in the company.

People familiar with matter said the Treasury had sought to help broker a deal between the insurer and the New York Fed, reasoning that management’s knowledge of the some 800 securities might help squeeze more profits out of them and maximize taxpayers’ returns on their AIG investment. Fed officials remain concerned how a quick deal with AIG might appear to the public, the people said.

At AIG, the plan to buy back the portfolio of mostly subprime mortgage securities has been part of its strategy as it emerges from government ownership.

The insurer has stockpiled about $20 billion in cash to purchase the Maiden Lane II assets and similar securities.

“It’s a very different story with or without these securities,” Robert Benmosche, AIG’s chief executive, told the Financial Times. “We can improve yields by 3-4 percent.”

The increase, Mr Benmosche said, would help AIG reap an additional $500 million -$700 million in annual income.

Other financial institutions may have reached the same conclusions.

“We have been told that someone else was putting together a bid,” Mr Benmosche said. “I think we can offer a little more, but the price we offered is about it. Until I see a competing bid, I’d have to wait and see.”

Barclays and the New York Fed declined to comment.

On the lookout for more profitable uses of excess capital stockpiled in the wake of the crisis, many banks and investment firms have turned to formerly distressed assets.

Goldman Sachs bought more than $8 billion in mortgage-backed securities from State Street in December, people familiar with the matter have said.

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