AIG: Toxic Asset Sale Winner
By Philip van Doorn - 04/26/12 - 4:20 PM EDT
NEW YORK (TheStreet
) -- American International Group
was the winner among the largest U.S. financial names on Wednesday, with shares rising 3% to close at $33.71.
The broad indexes all saw 1% gains, after the National Association of Realtors' said its index of pending home sales increased 4.1% in March to 101.4, the highest level since April 201. In addition, the index was also revised to show an increase of 0.4% in February from a previous reading of a 0.5% decline.
The KBW Bank Index
rose 1% to close at 48.71.
The Federal Reserve announced on Thursday that it had sold "the entirety of the MAX CDO holdings from its Maiden Lane III LLC (ML III) portfolio to a consortium consisting of Barclays Capital Inc. and Deutsche Bank Securities Inc. following a competitive bid process."
Maiden Lane III was formed in November 2008 and funded by the Federal Reserve Bank to purchase heavily discounted collateralized debt obligations from AIG, in order to limit the amount of collateral payments AIG was making to credit default swap counterparties, as the CDOs declined in value.
The Federal Reserve Bank of New York didn't provide details on the amount of securities sold, but the Wall Street Journal reported earlier CDOs with a face value of $7.5 billion were being auctioned.
Credit Suisse analyst Thomas Gallagher said on Thursday that "assuming that the CDOs were sold at 70c, this implies that the Fed will realize ~$5.25B of value from the transaction, the proceeds of which will help pay down the $8.7B remaining on the Fed loan backing ML III," adding that his firm assumed that "AIG's favorable mark on the sale should be roughly $300mm (though a portion of this may have already been recorded in 1Q 12)."
According to Gallagher, the Fed will continue its efforts to sell the remaining Maiden III assets by year-end, valued at an estimated $13.5 billion at the end of 2011.
Gallagher has a neutral rating on AIG's shares, with a $31 price target.
Wells Fargo analyst John Hall rates AIG "Outperform," and said on Thursday that "the sooner Maiden Lane III
is extinguished, the sooner AIG can use its capital contribution to MLIII for higher order purposes including share repurchase."
AIG's shares have returned 45% year-to-date, following a 38% decline during 2011.
The shares trade for 11 times the consensus 2013 EPS estimate of $2.97. The consensus 2012 EPS estimate is $2.99.
Interested in more on AIG? See TheStreet Ratings' report card for this stock.
-- Written by Philip van Doorn in Jupiter, Fla.
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