February 29th, 2012
Econintersect: One of the three Maiden Lane asset portfolios purchased by the Federal Reserve Bank of New York (New York Fed) as Bear Stearns and AIG collapsed in 2008 has been closed. The three portfolios were created as the Fed provided money to facilitate the merger of Bear Stearns into JPMorgan Chase (NYSE:JPM) and to provide capital to support the wind down of the huge insurance giant AIG (NYSE:AIG). As assets have been sold out of these portfolios the Fed lines of credit that provided the money for the securitized asset purchases have been retired. Any excess sales proceeds above the full credit amount extended are turned over to the U.S. Treasury. With the closure of Maiden Lane II, a $6 billion sale to Credit Suisse, the Treasury has received $2.8 billion, the gain on the original portfolio acquired by the Fed for $19.494 billion.
Follow up:Maiden Lane II was the smallest of the three Maiden Lane Portfolios. The history of these “investments” is shown in the following graph from the New York Fed:
The graph is dated February 22 and does not include the February 28 “close out transaction.” The data plotted in the graph is the remaining loan balance at the New York Fed, which was less than the market value of the remaining portfolio. (See table below.)
The systematic sales of Maiden Lane assets are shown in the graph above. The table below shows the balance sheet summaries for the three portfolios as of February 22, with fair market value estimated as of 31 December 2012.
Using the data in the above table Econintersect estimates that the “profit” turned over to the Treasury would have been about $2.2 billion if Credit Suisse had paid the full value estimated at the end of 2011. The inference is that the market value of the assets increased nearly 10% (about $600 million) in less than two months. This is consistent with the increased demand for securities containing subprime, Alt-A and option adjustable-rate mortgage debt that has been reported in an article at Bloomberg. That article says typical prices for such debt has risen 12% (from $0.49 to $0.55 on the dollar) since the middle of the fourth quarter.
- NY Fed sells off last of Maiden Lane II assets (Reuters, 28 February 2012)
- Maiden Lane Transactions (Federal Reserve Bank of New York)
- Fed Sells Remaining Maiden Lane II Assets to Credit Suisse (Caroline Salas George, Bloomberg, 28 February 2012)