Analysts claim Fed's Maiden Lane II strategy is working
The success of the Federal Reserve's sale of nonagency mortgage-backed securities it bought in the bailout of American International Group (AIG) proves the market has a strong appetite for these assets, Bank of America Merrill Lynch analysts said in a report Monday. Last week, the Fed announced it sold the $1.3 billion in MBS through BlackRock Solutions as a manager. AIG executives had planned to buy the assets back, and were surprised to find the Fed wanted to move them on the open market in the hopes of raising more profits for taxpayers. The successful result shows a slow disposition strategy for assets acquired under emergency situations can work and lead to higher prices. The "successful sale of Maiden Lane II nonagency MBS was another step forward in the process of showing that the much-maligned strategy of 'kicking the can down the road' is actually working," analysts said. Dallas Federal Reserve President Richard Fisher agreed last week while speaking to journalists. He said the Fed's strategy was in line with getting "the best returns on any investment and to do that in a responsible way." This is good news for the Fed, which is facing the sale of its own MBS portfolio bought up during the height of the crisis when no one could determine the value for these rapidly deteriorating assets. It's also a good sign that banks still looking to unload properties making up the shadow inventory of foreclosures can expect higher prices if a "slow, steady" strategy is implemented. "As is well known, the Fed’s monetary policy has created a wall of money that needs to be put to work. Increasingly, one of the key things missing when investors attempt to do so is available assets," BofAML analysts said. "These asset sales directly address that problem." The Fed is scheduled to notify winning bidders this week. Write to Jon Prior. Follow him on Twitter @JonAPrior.