US insurer American International Group has offered to buy back US$15.7 billion in mortgage-backed securities from the central bank as part of its efforts to emerge from a government bailout.
In a filing on Thursday to US market regulators, AIG offered the Federal Reserve Bank of New York (FRBNY) to purchase all of the residential mortgage-backed securities in Maiden Lane II, a special entity created to house toxic assets in the government’s 2008 rescue of the foundering insurance giant.
“AIG believes this offer is in the best interest of the US taxpayers, the US government and AIG itself,” AIG president and chief executive Robert Benmosche said in the letter to the New York Fed filed with the Securities and Exchange Commission.
“If accepted, this offer will substantially reduce the amount of outstanding government assistance to AIG [and] help AIG ensure that the US government recoups all of the money it has invested in AIG,” the company said.
It will also “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.”
The Fed would gain a US$1.5 billion profit on the deal, and it would reduce AIG’s debt to the government by US$13 billion to US$26 billion, AIG said.
The outstanding debt includes Maiden Lane III, another special entity created to house AIG’s toxic credit-default swap assets.
Confirming the offer, the New York Fed on Friday said any decision “will be made in a way that maximizes the proceeds to the taxpayer and that is consistent with the goal of fostering financial stability.”
If the New York Fed accepts the offer, it “will accelerate the time period within which the US -government will be able to terminate all of its assistance to AIG,” the firm wrote.
For AIG, the Maiden Lane II securities present an “attractive” profile.
The company “has extensively evaluated the risk in the portfolio and has determined it is within AIG’s overall risk tolerance for residential mortgage risk.”
The company said it did not expect the transaction to have a significant effect on its credit ratings from rating agencies.
On Tuesday, AIG repaid US$6.9 billion to the US Treasury, using proceeds from the sale of its stake in industry rival MetLife.
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