Maiden Lane III Shows Once-Toxic Assets Paying Off

ML III shows “trash” assets can become “treasure.” Image: Fotolia.

The Federal Reserve Bank of New York has finished selling the mortgage-related Maiden Lane III assets from its bailout of American International Group, generating a net gain of about $6.6 billion and suggesting that what were once thought of as toxic assets when the Fed got them during the downturn have reached a point in the market cycle where it finally pays to sell them.

This builds upon the disposition of Maiden Lane II LLC earlier this year in February 2012, which resulted in a net gain of approximately $2.8 billion.

It also follows the January 2011 termination of the New York Fed’s extension of credit to AIG, which produced approximately $8.2 billion in interest and fees. “When taken together, the total net profit to taxpayers from the New York Fed’s assistance to AIG and AIG-related facilities was $17.7 billion,” the New York Fed said.

More details are slated to be released this fall, “including an account showing the acquirer and the price paid for each individual security,” according to the New York Fed.

In other capital markets news last week, a recent report released by the New York Fed suggests banning short-selling has not improved stock prices any and probably could not have stopped the recent inordinate downturn suffered by the industry.

Among the many reforms that came out in the wake of the recent downturn were bans on short sales of stock, not only in this country, but also in others. These were aimed at mitigating the perceived risk that—roughly put—bets against the securities encouraged the market failure.

The report by two professors and an assistant vice president in the New York Fed’s research groups finds in an analysis of “empirical evidence from the United States” that stock prices kept falling even after bans were put in place. Also, the report finds that the bans “lowered market liquidity and increased trading costs." The latter is said in the research to have increased by $500 million between Sept. 18 and Oct. 8, 2008 as a result of the ban. “A re-examination of this issue is particularly important in light of the latest wave of bans in Europe, including the restrictions imposed by Spain and Italy in July,” the authors of the report noted.

Also in recent cap markets news, fixed-income firm MountainView Capital Holdings said it has acquired Clayton Holdings’ independent pricing service, which “provides fixed-income managers and investors with third-party, fair-market pricing for hard-to-value securities.” These include residential mortgage-backed securities and commercial MBS. The former Clayton pricing group is now operating under MountainView’s name. MountainView and Clayton also have formed a “strategic alliance whereby each firm can offer their respective clients integrated access to...services provided by both firms,” according to a press release. According to the release, Clayton’s surveillance business will continue to be based and operate out of Denver.

In addition, MountainView has hired Andrew Platt to the newly created post of head of business development. Platt previously served as managing director and head of specialty finance in the financial institutions group at Cantor Fitzgerald.