AIG May Reap Mortgage Bond Profits to Repay Bailouts: Report
Troubled insurer American International Group (AIG), the recipient of hundreds of billions of dollars in taxpayer money through the Treasury Department and Federal Reserve, may relinquish its stake in certain mortgage-related bonds as part of an effort to repay bailout funds. The assets are located within the Maiden Lane (ML) II and III portfolios, which the government created in 2008 to buy troubled assets AIG as part of the bailout of financial firms. AIG is reportedly considering cashing in its stake in the portfolios, possibly on confidence that asset values returned since the securities were bought at half their face value, according to a Bloomberg report today that cites three unconfirmed sources. AIG could not comment on record for this story. The ML II portfolio contains non-agency residential mortgage-backed securities (RMBS), according to details released in April by the Federal Reserve Bank of New York. The ML III portfolio contains multi-sector collateralized debt obligations (CDOs). The loans extended to Maiden Lane II and III were repaid according to their monthly schedules this week. On the outstanding loan to Maiden Lane II, $220m was returned to the New York Fed, bringing the total left to be repaid down to $14.089bn. Maiden Lane III saw a fall of nearly $400m, dropping the balance remaining to $15.469bn. In March 2009, AIG disclosed names of dozens of trading partners and financial institutions that received billions of dollars in an effort to pay down the company's debts. Of its initial $85bn in emergency funds, AIG distributed $22.4bn to financial counterparties relating to swaps transactions from AIG Financial Products in the last months of 2008. The ML III portfolio paid out $27.1bn to large investment firms and $2.5bn to AIG FP. The Troubled Asset Relief Program (TARP) funds paid to AIG by the Treasury cannot be repaid until the Fed is repaid. Bloomberg reported that AIG CEO Robert Benmosche previously indicated the company would pay down its Federal Reserve credit line with the proceeds from divesting two life insurance units. At that point, Benmosche has said, AIG will focus on repaying TARP funds to the Treasury. The sale of one of those subsidiaries, Alico, continues on schedule to close later this year. AIG is evaluating how to proceed with AIA, the other subsidiary -- a sale of which fell through earlier this year. Write to Diana Golobay. Disclosure: the author holds no relevant investments.