Banks Prepare Bids for ML III Sales, Report Says

Different banks have reportedly started preparing bids for the pontential Maiden Lane III (ML III) sales by the Federal Reserve that were in the news last week.

According to a Bloomberg report, Deutsche Bank, Barclays, Credit Suisse as well as Goldman Sachs are all talking to investors and prepping bids to buy parts of the Fed's ML III portfolio. 

The portfolio comprises illiquid CDOs and most of the collateral is backed by residential and commercial real estate bonds. The Fed acquired the assets via its bailout of insurer American International Group (AIG).

On April 3, the Federal Reserve Bank of New York changed its investment objective for ML III, allowing it to explore the sale of some of the securities.

The New York Fed’s Web site now lists the investment objective as to “repay the New York Fed’s senior loan (including principal and interest),” which funded the takeover of the assets, “followed by AIG’s equity interest (including accumulated preferred distributions representing interest) for as long as the United States Treasury maintains an economic stake in AIG on behalf of the United States taxpayer.” Please see ASR's coverage on the topic.

The Fed's move appears to have negatively impacted the CMBS secondary market. TreppWire, a publication by CMBS data provider Trepp, said on April 6, three days after the Fed announced its changes, that CMBS spreads widened because of the Fed's announcement.

TreppWire reported that during the two days after the announcement, spreads on legacy super seniors widened 20 to 30 basis points. Meanwhile, the weaker 2007 AJ paper has dropped four to six points in price.

"The combination of the looming Maiden Lane sale, along with the Fed's withdrawal of support for further asset purchases, has apparently spooked the market," TreppWire stated.