American International Group will accrue between $3.8 billion and $5.8 billion as a result of the recent successful sale by the Federal Reserve Board of securities held in the Maiden Lane III facility, according to analysts at Sterne Agee in New York.
In an investor's note Friday, Sterne Agee analysts John M. Nadel, Dan Farrell, Alex Levine and Nitin Chhabra also estimated that $20 billion (face amount) of collateralized debt obligations backed by mortgage-backed securities of various grade remain in the facility after all the latest sales in a favorable market.
The analysts estimate the $3.8 billion/$5.8 billion return to AIG is based on the fact that $5.6 billion represents AIG's equity stake in the facility, and that $200 million more could accrue to AIG. That's because under the original agreement, AIG gets one-third of the money gained from the sale of securities in the facility above its equity stake.
The analysts estimate that the securities, based on recent sales, will yield 30 to 50 percent of face value, and that AIG will get one-third of the total gained from the sale of those securities. The latest sales were from a $28.82 loan collateralized by debt obligations backed by MBS held in the so-called Maiden Lane III facility.
The approximate face value of the securities held in the Maiden Lane III portfolio was $62.1 billion. It reflected markdowns in value AIG had already taken against its earnings.
Maiden Lane III was used to cancel credit-default swaps that AIG had sold to protect counterparties against losses. The insurer needed to be rescued after it was unable to meet collateral calls from banks that included Goldman Sachs Group Inc., Deutsche Bank, Paribas and Société Generale SA.
