Credit Suisse Wants Fed's Mortgage-Backed Securities

Credit Suisse has joined the list of banks and investment firms considering a rival bid for the portfolio of mortgage-backed securities that has already drawn a $15.7 billion offer from AIG, people familiar with the matter said.

Credit Suisse
Fabrice Coffrini | AFP | Getty Images
Credit Suisse

As the Financial Times reported on Tuesday, Barclaysis also considering forming a group to pursue the Maiden Lane II assets.

At the same time, Morgan Stanley has discussed with several clients the prospects of buying the securities, a person familiar with the matter said.

The Federal Reserve Bank of New York owns the 800 or so mortgage bonds, which are 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 wants to repurchase the portfolio to add higher-yielding securities and boost its earnings as the US Treasury, which still owns 92 percent of the company, prepares to sell off its shares.

The insurer went public with its offer earlier this month after the New York Fed did not respond to a previous overture.

The stalemate has helped spur interest from banks and investment firms that see the same profit opportunity noted by AIG, and drawn speculation that the New York Fed would eventually run a formal auction for the securities.

Fed officials remain concerned with the public and political fallout from striking a deal with AIG before it exhausts other options, which include holding an auction for the portfolio, selling the securities in the market or keeping them until they run off, people familiar with the matter have said.

The Treasury has sought to help broker a deal between AIG and the New York Fed, but withdrew from the process after the company publicly disclosed its offer.

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.

Robert Benmosche, AIG’s chief executive, told the Financial Times on Monday that the securities would help lift annual earnings by $500 million-$700 million.

The company had stockpiled $20 billion in cash, in part through the sale of municipal bonds, to buy back the Maiden Lane II securities and other similar assets.

“It’s a very different story with or without these securities,” Mr Benmosche said.

Credit Suisse , Morgan Stanley and the New York Fed declined to comment.

In its March 11 regulatory filing, AIG said a deal to acquire the Maiden Lane II assets would produce a $1.5 billion profit for the New York Fed while reducing its obligations to the government by about $13 billion.