CHICAGO, July 19, 2011 /PRNewswire/ -- Zacks.com announces
the list of stocks featured in the Analyst Blog. Every day the
Zacks Equity Research analysts discuss the latest news and events
impacting stocks and the financial markets. Stocks recently
featured in the blog include: American International Group
Inc. (NYSE: AIG), Bank of America Corp. (NYSE: BAC),
Citigroup Inc. (NYSE: C), Royal Bank of Scotland
Plc (NYSE: RBS) and Credit Suisse Group (NYSE: CS).
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Here are highlights from Monday's Analyst Blog:
Fed Earns $4.68B from AIG
Investment Portfolio
The New York Federal Reserve (Fed) has reported that it earned
about $4.68 billion from American
International Group Inc.'s (NYSE: AIG) Maiden Lane II, an
investment portfolio containing residential mortgage-backed
securities (RMBS), in the second quarter of 2011. The Maiden II was
acquired by the Fed from AIG at the peak of the financial
crisis.
The notional worth of these securities was $9.4 billion. Accordingly, the sale represented
about $10 billion of debt, at about
47 cents on the dollar. These were
part of the $31 billion debt, which
AIG had offered to buy for 51 cents
on the dollar in March this year but was rejected by the Fed.
Moreover, the majority of the RMBS was sold to broker-dealers in
nine sales that took place between April and June this year. These
primarily included Merrill Lynch, Pierce, Fenner, & Smith units
of Bank of America Corp. (NYSE: BAC), which purchased a
chunk of $1.14 billion of debt
followed by Citigroup Inc. (NYSE: C) that acquired
$699.4 million. Meanwhile, Royal
Bank of Scotland Plc's (NYSE: RBS) RBS Securities purchased
$541.1 million and Credit Suisse
Group (NYSE: CS) acquired $419.1
million.
In 2008, the Fed had put $20
billion into Maiden Lane to help buy residential
mortgage-backed securities from AIG, which had a face value of
$39.5 billion at that time. The total
notional value of the Maiden Lane II portfolio is more than
$30 billion.
During the same period, the sub-prime mortgage market remained
essentially frozen and these assets were high-yielding and were
most likely to be sold to private equity groups, hedge funds and
insurance groups.
The fair value of the portfolio at the end of 2010 reached
$15.9 billion, according to the Fed's
web site. However, Fed rejected AIG's bid of $15.7 billion to buy back the portfolio. The Fed
reasoned on March 30 that the public
interest in maximizing returns and maintaining market stability
would be better served by selling the assets competitively. Hence,
it started vending bonds from the RMBS portfolio since April 2011.
Meanwhile, the Fed has planned to slow the rate of sale going
ahead, given the recent sluggishness in market activities that have
recently lowered the value of such subprime mortgage securities by
almost 20%. This was due to the recent over-supply of subprime
securities owing to the ongoing de-risking activities implemented
by many organizations that finally led to the decline in demand and
prices in the market. Hence, the Fed has decided to wait and make
value investments as best as it possibly can.
Based on these factors, the Fed was able to sell only 36 of the
73 bonds offered for sale in the beginning of last month. The 73
bonds carried a face value of $3.8
billion. Failure to dispose all bonds again stems from the
fact that most of these bonds were backed by prime and so-called
Alt-A mortgages while the remaining senior bonds were backed by
sub-prime and home-equity collateral, wherein the over-supply
dampened the demand and therefore the prices of these bonds.
Additionally, the Fed has decided to disclose the number and
type of bonds sold each month, but not the price paid. Every
quarter it will provide a total dollar figure of the assets sold
along with the names of firms that bought the securities.
Furthermore, the Fed will not be disclosing what these firms
paid until all of Maiden Lane II's assets are sold. Within three
months of the final sale, the Fed will disclose the names of buyers
of these securities, the price they paid and the price Fed paid
when it bought the securities from AIG in 2008.
However, the receipt of final approval from Taiwan's Financial Supervisory Commission
(FSC), last week, to sell AIG's Nan Shan Life Insurance unit to the
Ruen Chen Group for $2.16 billion,
has moved AIG a step closer to unshackling itself from government
control.
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