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The Federal Reserve Bank of New York (“Fed”) postponed the sale of assets under the Maiden Lane III portfolio, acquired from American International Group (AIG - Analyst Report), as a part of its strategy to rescue the company from a financial downturn. However, Fed refused to disclose any reason for the delay.
A probable reason for putting the asset sale on hold could be the requirement for greater transparency in the sale process by other brokers and dealers. However, the asset disposal has impacted the company’s share price, which is already on the wane.
Fed rendered BlackRock Inc. (BLK - Analyst Report) with the responsibility of auctioning off these assets. The participating brokers and dealers were- Credit Suisse Group AG (CS - Snapshot Report), Morgan Stanley (MS - Analyst Report), Goldman Sachs (GS - Analyst Report), Merrill Lynch, the broker-dealer unit of Bank of America Corp. (BAC - Analyst Report), Citigroup (C - Analyst Report), Nomura Holdings (NMR - Snapshot Report), Barclays Capital (BCS - Snapshot Report) and Deutsche Bank (DB - Snapshot Report). The last date for submitting bids for assets worth $1.67 billion was May 17.
Earlier this month, Fed announced the sale of 16% of AIG’s bad assets valued at $7.5 billion to Barclays Capital and Deutsche Bank for an undisclosed amount. Maiden Lane III portfolio was created in 2008 to provide AIG with $24.3 billion in cash. This was also a part of $182 billion fund approved by the government as a bailout for the company.
Fed conducted a number of auctions earlier this year to sell off AIG’s assets, thereby shedding its residential mortgage-backed securities completely. Recently, it sold TRIAXX collateralized debt obligations, a part of the Maiden Lane III portfolio to Merrill Lynch for an undisclosed price. Presently, AIG has $8.996 billion in rescue loan dues, according to Fed and AIG filings.
The year has not been favorable for AIG given its vigorous asset disposal program for repaying the government debt. Moreover, despite raising funds in the past few quarters and repaying a chunk of its debt, AIG is not yet flexible with respect to capital. However, we expect the company to benefit from its scale of operations and economic recovery.
AIG currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long term ‘Neutral’ recommendation on its shares.
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