--Credit Suisse, Bank of America and RBS take some of $828 million
Maiden Lane III debt
--Maiden Lane III sales jump to $27.5 billion after auction
--New York Fed plans to sell another $11.9 billion by month's end
(Updates with additional buyers in the first paragraph and
announcement of more sales in the third paragraph.)
By Al Yoon
Credit Suisse Group AG (CS, CSGN.VX), Bank of America Corp. (BAC) and
Royal Bank of Scotland Group (RBS, RBS.LN) units were among the buyers
Thursday of $828 million of mortgage securities left over from the
bailout of insurer American International Group Inc. (AIG), according
to a person familiar with the sale.
The auctions of complex collateralized debt obligations and
residential mortgage-backed securities marked the latest sale from a
Federal Reserve Bank of New York portfolio taken on during the 2008
rescue of AIG.
They bring total sales from the vehicle known as Maiden Lane III to
about $27.5 billion in face value this year and reduce the remaining
portfolio to about $18.7 billion. Another $11.9 billion will be sold
by the end of the month, the New York Fed said later on its website.
The New York Fed is taking advantage of demand that has persisted even
as concern over global economic growth has steered investors away from
many risky assets. The potential for high returns, signs of stability
in the housing market and a shrinking supply of securitized assets
have spurred interest in the so-called nonagency-mortgage sectors that
produced steep losses for investors in 2011.
"The view on housing is that we have bottomed and the worst is over,
so that's fundamentally positive" for nonagency bonds, or those that
don't carry any federal backing, said John Sim, a mortgage-bond
strategist at J.P. Morgan Chase & Co. Furthermore, "there are just not
many bonds out there with yields like nonagencies," he added.
Sales from Maiden Lane III and two similar crisis-era portfolios
already have led to the full payoff of more than $70 billion in loans
made by the New York Fed. Repayments on two of them--a third contained
assets from the Fed-orchestrated sale of Bear Stearns--retired a chunk
of AIG's record $182.3 billion federal bailout, leaving only the U.S.
Treasury left to recoup $30 billion from selling its 60% stake in AIG.
A New York Fed spokeswoman and spokesmen from the three investment
banks declined to comment.
J.P. Morgan expects U.S. home prices will post a 1.6% drop in 2012 and
then rise by 1.4% in 2013, 3.7% in 2014 and 4.4% in 2015, as demand is
predicted to begin to match the supply of homes for sale for the first
time since 2007. Falling home prices reduce the amount an investor can
get if a defaulted loan results in foreclosure and sale of the
property.
Prices on some nonagency mortgages that posted double-digit losses in
2011 have gained 15% or more this year. Bonds backed by so-called
option adjustable-rate mortgages--one of the riskier types of
nonagency bonds--in June traded at 49 cents on the dollar, up from
42.5 cents on the dollar in December, according to Amherst Securities
Group.
ABX indexes of subprime-mortgage bonds are also at their highest
levels in more than a year, according to Markit.
Write to Al Yoon at albert.yoon@dowjones.com
(END) Dow Jones Newswires
July 12, 2012 18:36 ET (22:36 GMT)
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