Five Banks Bid for AIG Assets

Another batch of the riskiest mortgage-backed securities once owned by the American International Group are being auctioned off this week, according to two people familiar with the matter, a sale that would bring the insurance giant’s 2008 meltdown once step closer to a resolution.

The Federal Reserve Bank of New York took control of the assets after A.I.G. was bailed out in 2008. They are being auctioned to a group of bidders that includes Credit Suisse[CS  27.35    -0.12  (-0.44%)   ], Barclays Capital, Morgan Stanley [MS  20.26    -0.25 (-1.22%)   ], Goldman Sachs [GS  115.98    -1.41 (-1.2%)   ] and Royal Bank of Scotland [RBS-LN 29.36    0.48  (+1.66%)   ], according to the people, who spoke on the condition of anonymity because the auction is private. Bids are due on Wednesday, and a winner will likely be identified by Friday, the people said.

A New York Fed spokesman declined to comment. BlackRock, the asset manager whose BlackRock Solutions unit is leading the sale, also declined to comment.

The auction will be the second major sale of the year of assets held by the New York Fed in a vehicle known as Maiden Lane II, which absorbed A.I.G.’s soured residential mortgage-backed securities after the 2008 bailout. Last month, Credit Suisse won an auction for bonds from the vehicle with a face value of around $7 billion, which it promptly sold to clients including hedge funds and other banks.

The success of that auction led to another bid by one of the five firms for more Maiden Lane II assets, and signaled that the market for residential mortgage-backed securities, the bête noires of the financial crisis, has improved since last year. The New York Fed conducted a sale of some of the Maiden Lane II bonds last June, but had to halt the sale when it created turmoil in the bond market.

The bonds being sold in this auction have a face value of roughly $6 billion, about half the amount remaining in Maiden Lane II, according to the people. The auction was earlier reported by The Wall Street Journal.