Maiden Lane Transactions
| Company type | Limited liability companies |
|---|---|
| Industry | Financial services |
| Founded | April 29, 2008 |
| Headquarters | New York City , United States |
| Products | Asset management of Bear Stearns and AIG bailout assets |
| Owner | Federal Reserve Bank of New York |
Maiden Lane Transactions denote three distinct limited liability companies formed by the Federal Reserve Bank of New York in 2008 to serve as financial conduits for managing assets linked to three organizations: the former Bear Stearns, the lending branch of the former American International Group (AIG), and AIG's credit default swap division. The designation originates from the street adjacent to the Federal Reserve Bank’s headquarters in Manhattan.
By the middle of 2012, the Federal Reserve declared that all loans to Maiden Lane LLC (ML LLC) and Maiden Lane III LLC (ML III LLC), initially totaling $28.82 billion and $24.3 billion respectively, had been fully repaid with interest. Earlier that year, Maiden Lane II LLC had already settled its $19.4 billion debt.
Bear Stearns bailout
Maiden Lane LLC was created in conjunction with JPMorgan Chase’s acquisition of Bear Stearns in early 2008. Given Bear Stearns’s exposure to high-risk assets, the Federal Reserve established Maiden Lane LLC and extended a loan of $28.82 billion, while JPMorgan contributed an additional $1.15 billion. Maiden Lane acquired roughly $30 billion worth of Bear Stearns assets, which were gradually liquidated over time. Although Bank of America initially forecasted losses ranging from $2 billion to $6 billion, the portfolio ultimately yielded a net profit of $2.5 billion.
Formed as a Delaware limited liability company on April 29, 2008, Maiden Lane was also registered as a foreign LLC in New York by June 26, 2008.
AIG bailout
In the course of the 2008 federal rescue of AIG, two holding companies—Maiden Lane II LLC and Maiden Lane III LLC—were established with loans amounting to $19.5 billion and $24.3 billion from the Federal Reserve. The aggregate government support, encompassing Maiden Lane II and III along with Treasury interventions, totaled $182 billion.
Maiden Lane II LLC
Maiden Lane II LLC acquired high-risk residential mortgage-backed securities (RMBS) from AIG’s subsidiaries. Beginning in December 2008, credit was extended to Maiden Lane II by the Federal Reserve Bank of New York. By October 2010, the net value of its portfolio stood at $15.847 billion.
The funds were employed to reimburse banks such as France's Societe Generale ($11.9 billion), Germany's Deutsche Bank ($11.8 billion), and Britain's Barclays PLC ($8.5 billion). Additionally, it provided repayments to U.S. banks previously aided under TARP, including Goldman Sachs ($12.9 billion), Bank of America ($5.2 billion), and Citigroup ($2.3 billion), all at full face value.
In February 2012, the New York Fed announced it had sold off the remaining securities held by Maiden Lane II, fully repaying the original $19.5 billion loan with an approximate net gain of $2.8 billion, which included $580 million in accrued interest.
Maiden Lane III LLC
AIG had entered into credit default swap agreements on collateralized debt obligations (CDOs), which necessitated collateral postings exceeding $52 billion by September 2008 due to declining CDO valuations. To limit AIG’s collateral requirements, Maiden Lane III LLC was formed to acquire these multi-sector CDOs. Credit extensions commenced in November 2008, and by October 2010, net portfolio holdings were valued at $23.003 billion.
As market conditions improved, private investors expressed interest in assets held by Maiden Lane III. On August 23, 2012, the Federal Reserve completed the sale of its remaining Maiden Lane III holdings, realizing a profit of $17.7 billion from these AIG bailout assets. The majority of Federal Reserve earnings are returned to the U.S. Treasury, which maintained a 53% ownership stake in AIG stock and intended to gradually divest its remaining $24.2 billion investment over time.
External links
- Maiden Lane Transactions - Federal Reserve Bank of New York
- FRB H.4.1 Release – Factors Influencing Reserve Balances – July 3, 2008
- Summary of Maiden Lane Transactions by the Federal Reserve Bank of New York
- "Federal Reserve Bank: H.4.1 Release – Factors Influencing Reserve Balances"
- Yahoo News Coverage on AIG Bailout
- "SIGTARP Report 10-003 – Measures to Restrict Payments to AIG Counterparties"
- Announcement from New York Fed on Complete Repayment of Loans to Maiden Lane LLC and Maiden Lane III LLC