AIG Buys Assets in Maiden Lane II Auction

A source close to the situation confirms AIG bought assets in the New York Federal Reserve's auction of mortgage backed securities it acquired from the insurance company during the height of the financial crisis.


The source declined to say how many assets AIG bought. Traders said there appears to have been one buyer for about 15 to 17 of the 42 bonds, a buyer they speculate is AIG. The New York-based insurance company declined comment.

On Wednesday the New York Federal Reserve began what is to be a series of auctions to sell the assets held in a special purpose vehicle called Maiden Lane II. MLII as its known was set up in 2008 so the Fed could buy troubled mortgage backed securities from AIG as part of a government bailout of the insurer. The Fed began the process selling 42 of the 52 residential mortgage backed securities it offered yesterday. The auctions starting after the Fed rejected AIG's offer in December to buyback the whole portfolio of 800 RMBS for $15.7 billion dollars, figuring public auctions could fetch a higher price for the securities.

Untouchable and unwanted during the financial crisis, these subprime securities are finding an audience today with big investors willing to take on added risk, or investors seeking the higher yields they offer. AIG wanted them back on their books because the securities have performed well, and can be held against its long term insurance liabilities.

The Fed said the whole of Maiden Lane II has a face value of $39.3 billion dollars, and a fair or market value of $15.9 billion dollars. The securities sold yesterday had face value of $1.326 billion.