Insurance giant American Int’l Group (AIG) offered on Thursday to pay $15.7 billion in cash to repurchase a portfolio of residential mortgage-backed securities, or RMBS, the U.S. government had taken off the insurer’s hands during the height of the financial crisis. The securities were acquired by the Federal Reserve Bank of New York [FRBNY] as part of AIG’s massive $182.3 billion government bailout in 2008.
AIG said in a regulatory filing that the Fed of N.Y. will realize a profit of about $1.5 billion on its residual equity interest in Maiden Lane II, the entity that holds the securities. That vehicle, which originally held about $30 billion worth of securities — its portfolio value now stands at $15.9 billion, suggesting AIG is offering to buy all of the approximately 800 RMBS owned by Maiden Lane II at an average of 50 cents on the dollar — was set up by the Fed in 2008 to “alleviate capital and liquidity pressures” on AIG by purchasing about $20.5 billion of RMBS.
AIG said the total outstanding assistance to the company from the U.S. Govt will be reduced by approx. $13 billion to a total of about $26 billion if its offer is accepted. AIG is also offering to purchase all of the RMBS owned by Maiden Lane II in a single transaction.
AIG said, “If accepted, this offer will substantially reduce the amount of outstanding government assistance to AIG; help AIG ensure that the U.S. government recoups all of the money it has invested in AIG; and guarantee that the Federal Reserve Bank of New York earns a profit on its interest in Maiden Lane II while reducing the amount of AIG-related assets on the FRBNY’s balance sheet.”
AIG added, “Today AIG is a stable company, with a bright outlook and strong liquidity, positioned to match the Maiden Lane II assets with appropriate, longer-term insurance liabilities, not shorter-term liabilities.”
The U.S. Treasury currently holds a 92.1 percent stake in AIG, which it plans to sell later in the year.
AIG closed Thursday’s regular trading session on the New York Stock Exchange at $36.48, down $0.63 (1.70%) on a volume of 2.873 million shares. However, in extended trading, the equity, which has gained 3.90% in the last 52wks, gained 80 cents to $37.28.