The Federal Reserve Bank of New York ("Fed") recently announced
the sale of
American International Group
) remaining $1.9 billion bad assets to Merrill Lynch Pierce Fenner
& Smith Incorporated, a unit of
Bank of America Corporation
), according to
The bad assets are the toxic mortgage securities (called Maiden
Lane III LLC) that the Fed assumed in 2008 to rescue the insurance
giant. Although the terms of the deal remain undisclosed, the sale
of these mortgage securities are said to have occurred at a
discounted price from its face value.
The unpaid loan amount is unclear as sale of assets have not
taken place at the face value of the assets. However,
revealed that the unpaid loan amount accrued an interest of $3.5
billion as on June 6.
Last month, Fed had postponed the sale of these assets. Perhaps,
this step was taken for the need of greater transparency by other
brokers and dealers in the sale process. However, there was no
official affirmation on the same.
Maiden Lane III was created in 2008 to rescue the company from a
financial downturn by furnishing it with $24.3 billion in cash. The
portfolio of assets comprising collateralized debt obligations
(CDOs) to terminate the credit default swaps (CDS) are the last of
the assets that still remain unpaid under the loan issued by the
Under the financial rescue program, the Treasury Department
provided a lifeline of $68 billion along with $144 billion from
Fed. AIG could repay only $17.5 billion of the loan until January
14, 2011 when Fed decided to terminate the financial assistance and
sell the assets in order to repay the company's obligations to the
American public. The US Treasury continues to have an investment
worth $30 billion approximately AIG's shares.
With the sale of these assets AIG will complete the repayment of
Fed's loan. According to the Federal Reserve, it will have to repay
$5.6 billion, two-third of which will be shared by Fed.
Unburdened from most of its debt obligations, AIG can now
breathe a sigh of relief. It can now focus more on its core
business and work towards improving its earnings. Also, now it will
be able to utilize its earnings to boost shareholders value by
initiating a share repurchase program.
The company is also settling various litigations filed against
it. Most recent being a payment made to the supervisory body of
Pennsylvania worth $16.8 million and another payment of one million
made to settle a workers compensation insurance complaint in
Following the favorable events in the company which include the
lowering of its leverage coupled with the settlement of lawsuits,
its stock price has been on an increasing trend. Its shares traded
at $30.30 (as on June 13, 2012) exhibiting an increase of 11 cents
per share over the previous day's closing price and also a 2.6%
increase over Monday, June 11, 2012.
Following the recent favorable movements, the Zacks Consensus
Estimates improved by 0.81% to $3.74 per share over the last
30-days for the year 2012. AIG currently retains a Zacks #2 Rank,
which translates into a short-term Buy rating. We also maintain our
long-term Neutral recommendation on its shares.
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