Federal Reserve Conducts Another Secret Sale Of Maiden Lane II Securities
The Federal Reserve gave just five banks the chance to bid on taxpayer-owned AIG assets -- again.
It's just the latest secret sale of the toxic mortgage-backed securities, which the Fed has been trying to unload ever since it absorbed them at the height of the 2008 financial crisis to prevent AIG's collapse. Previous closed auctions - in which only a few banks were allowed to participate - were heavily criticized because they shut out smaller dealers.
On Tuesday, the Fed invited just some of Wall Street's biggest firms - Credit Suisse, Barclays, Merrill Lynch, Morgan Stanley, and RBS Securities - to participate in the auction of $6 billion worth of so-called Maiden Lane II securities, which was won by Credit Suisse for an undisclosed amount.
It's the third such closed auction out of 25 auctions. After the Fed sold $6.2 billion in Maiden Lane II securities sold to Goldman Sachs in early February, David Castillo, head of sales and trading at Further Lane Securities, told Bloomberg News, "The exclusivity by which the process has shut out smaller dealers is a little un-American.... It seems odd that if you want to get the best possible price that it wouldn't be open to anyone who wants to put in the most competitive bid."
And the Fed sold $7.01 billion in Maiden Lane II securities to Credit Suisse in a similarly closed auction in January.
The Fed will be repaid in full for its $19.5 billion loan to the Maiden Lane II portfolio as a result of its sale of the securities. The sale also will produce $2.8 billion for taxpayers, according to the Fed's announcement.
The New York Fed declined to comment on the auction.
"The New York Fed decided to move forward with the transaction only after determining that the winning bid represented good value for the public," the Fed wrote in its announcement.
When the Fed sold the AIG securities in open auctions in 2011, some investors complained that the sales disturbed market prices, according to The Wall Street Journal.