AIG Goes For Re-Broke, Offers To Repurchase Toxic Subprime Portfolio From Fed For $15.7 Billion

When a bankrupt zombie company offers to purchase from the Fed the very instruments that put it in bankruptcy in the first place, and which the Fed was forced to put on US taxpayers in order to perpetuate the status quo farce, you know the words Banana republic don't even start to begin to express the describe the lunacy we live in.

From Reuters:

  • Submits offer to buy all of rmbs owned by Maiden lane II for $15.7 billion in cash
  • If accepted, this offer will substantially reduce the amount of outstanding government assistance to AIG
  • If accepted, offer will guarantee frbny earns a profit on its interest in Maiden lane II
  • Says total outstanding assistance from U.S. government will be reduced by about $13 billion to total of about $26 billion
  • Says conditions that necessitated Maiden lane II have been resolved
  • Aig's outstanding assistance from the U.S. government totals approximately $39 billion
  • Says is offering to purchase all of the approximately 800 rmbs owned by Maiden lane II in a single transaction
  • Anticipates more than 98 percent of Maiden lane II securities will be classified as naic 1 securities by regulators
  • Says does not expect the transaction to have a material effect on its ratings
  • Says set aside the cash necessary to pay the purchase price in full

Incidentally, $15.7 billion is below the value the Fed has Maiden Lane II marked at as of today, which is $15.9 billion. We are confident that this will not prevent the Fed from doing everything in its power to bend over to the nationalized insurer's demands.

And yes, Maiden Lane was created by the Fed to front the insolvent AIG cash back in 2008, and purchase AIG's own toxic paper. To wit:

Purpose: ML II LLC was created to alleviate capital and liquidity pressures on American International Group Inc. (AIG) stemming from its securities lending program by purchasing $20.5 billion in residential mortgage-backed securities (RMBS) from several of AIG’s U.S. insurance subsidiaries.

Terms: The New York Fed lent ML II LLC approximately $19.5 billion. The loan has a 6-year term and accrues interest at 1-month LIBOR plus 100 basis points. The AIG insurance subsidiaries agreed to defer receipt of $1 billion of the purchase price. The fixed deferred purchase price accrues at 1-month LIBOR plus 300 basis points.

Investment Objective: Maximize the long-term cashflows of the portfolio to repay the New York Fed’s senior loan (including principal, interest, and residual), while refraining from disturbing general financial market conditions. Monthly loan repayment commenced in January 2009.