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Adam Anderson

Banks form rare partnerships to bid on AIG leftovers

by Adam Anderson | Dun & Bradstreet Editor

April 26, 2012 | No Comments »


Some of the biggest banks have pooled their resources to acquire toxic mortgage assets that once belonged to American International Group (AIG).

Barclays and Deutsche Bank  linked up to bid on a portfolio that the US Government acquired after bailing out AIG in 2008. Today the two banks were declared the winners of a fierce bidding war over the collection of collateralized debt obligations (CDOs), which consists of bundles of commercial mortgage bonds. The exact purchase amount was not disclosed, but the face value was about $7.5 billion. The banks probably paid a fraction of that.

It was a good bargain and that is the main reason why other banks were interested. Other big banks such as Goldman Sachs, Citigroup, and Credit Suisse formed a similar partnership to also make a bid. Another consortium consisting  of Bank of America, Morgan Stanley, and Nomura came together to make a bid as well.

The rare cooperation among banks is a hint that big banks are a little hesitant to take on risky assets on their own. By joining together they split the cost and the risk. Deutsche Bank and Barclays already had a vested interest in the highly-technical CDOs and will likely break the package apart and try to resell the pieces for a profit. But there is still a risk that the restructured assets won’t appeal to investors.

Meanwhile, the deal marked another step for the Federal Reserve Bank of New York as it unwinds itself from the AIG bailout. The government gave the troubled insurer $182 billion in rescue money in 2008. The New York Fed has sold off other AIG assets this year. In February it netted $2.8 billion in a sale of other soured AIG assets. While these assets are the same ones that brought AIG to its knees four years ago, the economy has recovered enough that there is a regained interest in their value.

The New York Fed reported today that the winning bid was a “good value for the public.” President of New York Fed William Dudley went on to say, “This successful sale marks another important milestone in the wind-down of our crisis-era intervention.”

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