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Counter Bids Could Be in the Offing for AIG Assets Held by Fed

Posted on 22 Mar 2011

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American International Group Inc. (AIG), which has been trying to repurchase mortgage-backed securities from the Federal Reserve Bank of New York, may face rival bids to its $15.7 billion offer. See related article.

Among the investors considering making a counter offer is Barclays Plc, according to the Financial Times. Seth Martin, a Barclays spokesman in New York, declined to comment.

On March 10, AIG had requested to buy back assets it had turned over to a Fed fund known as Maiden Lane II when the insurer was rescued by federal funding. The New York Fed said the next day it is considering the offer as it seeks a solution that “maximizes the proceeds to the taxpayer.”

“We have been told that someone else was putting together a bid,” AIG Chief Executive Officer Robert Benmosche, 66, told the Financial Times in an interview. “I think we can offer a little more, but the price we offered is about it. Until I see a competing bid, I’d have to wait and see.”
Mark Herr, a spokesman for the New York-based company, didn’t elaborate.

The facility holds mortgage-linked assets that AIG had purchased with collateral turned over by Wall Street banks through securities-lending deals. When the housing market collapsed, AIG was unable to reimburse banks that wanted their collateral back, prompting the Fed to make about $22.5 billion available to Maiden Lane II to take the assets off the New York- based company’s balance sheet.

The value of some of the securities subsequently rebounded and the bonds have paid coupons, reducing the Fed’s investment in the facility. At the same time, AIG has lowered its obligations under a $182.3 billion bailout by selling units including non-U.S. life insurers and a consumer lender.
AIG said last month it is seeking better returns from its investment portfolio by extending the duration on its fixed- income holdings.

“We expect the redeployment of cash in short-term investments in the longer-term, higher-yielding securities will provide an opportunity to improve future earnings,” Chief Financial Officer David Herzog said Feb. 25 on a conference call with analysts.