AIG Offers $15.7 Billion to Buy Back Subprime Portfolio

American International Groupoffered on Thursday to buy back, for $15.7 billion cash, mortgage-backed securities the U.S. government had taken off the bailed-out insurer's hands during the financial crisis.

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AIG , which is 92 percent owned by the government, said the Federal Reserve Bank of New York will make a profit of about $1.5 billion on its residual equity interest in Maiden Lane II, the entity that holds the securities, if it accepts the offer.

AIG said in a U.S. Securities and Exchange Commission filing that the total outstanding assistance to it will be reduced by about $13 billion to some $26 billion if its offer is accepted.

Maiden Lane II was created in 2008 by the New York Federal Reserve to "alleviate capital and liquidity pressures" on AIG.

Maiden Lane II took over $20.5 billion in residential mortgage-backed securities from AIG's insurance subsidaries. The goal of MLII was to allow adequate time for the insurer to sell assets to repay the U.S. government, according the New York Fed's website.

AIG was one of a handful of companies that became emblematic of the crisis that decimated the financial industry in 2008 and 2009.

The company's main role was in issuing insurance—called credit default swaps—that backed up the subprime mortgage industry, which collapsed as housing prices fell. AIG got into trouble because it did not have the reserves to pay off on the swaps.

Fearing that the collapse of AIG would spread through the U.S. and global economy and cause systemic disaster, the government stepped in to take its stake in the company.

The capitalization was inteded to simplify AIG's $182 billion bailout by paying off the Federal Reserve and leaving the US Treasury as the company's majority owner.