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Fed rejects AIG bid to buy back mortgage-backed securities

AIG had offered $15.7 billion for a pool of bonds that the Fed bought during the financial crisis to prevent the collapse of the insurance giant. The Fed will instead sell the bonds separately over time.

March 30, 2011|Reuters

The Federal Reserve rejected a $15.7-billion bid from American International Group Inc. for a pool of mortgage-backed securities Wednesday and said it would sell off the bonds over time instead.

The news is a blow to AIG, which has been trying for months to buy the bonds for the investment portfolios of its insurance units. AIG took its bid public March 10, offering cash for the assets of a vehicle called Maiden Lane II.

The Fed created the entity during the depths of the financial crisis to take the securities off AIG's hands and help prevent the collapse of what was then the world's largest insurer.

The offer started what amounted to a public auction for the assets, with Wall Street sources pointing to heavy bid interest from a number of banks.

There were no other formal bids, but there was interest by multiple parties, a source familiar with the matter said Wednesday.

The Fed said Wednesday that the public interest in maximizing returns and maintaining market stability would be better served by selling the assets in the portfolio "individually and in segments over time as market conditions warrant through a competitive sales process."

The Fed named BlackRock to run the sales process, which will start next week and has no fixed time frame.

Investors have piled into the $1.3-trillion residential mortgage-backed securities market in the last two years despite the high defaults and foreclosures that plague the sector.

An AIG spokesman could not immediately be reached for comment.

AIG shares rose 8 cents to $36.13 in after-hours trading after the Fed news.

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