New York Fed buys AIG assets at half price

The Federal Reserve Bank of New York has paid $19.8 billion to troubled insurer AIG for residential mortgage backed securities (RMBS) with a face value of $39.3 billion.

The RMBS were transferred to a new fund established by the New York Fed, Maiden Lane II, created to take on AIG's hefty mortgage liabilities. To enable the purchase the Fed extended a senior loan to the fund, which bears interest at one-month Libor plus 1% and has a six-year term.

$5.1 billion was added by AIG in the form of capital contributions, to settle outstanding transactions under the Securities Lending Program.

The US government bailed out AIG in September, taking a 79.9% stake in the company in exchange for an $85 billion bridge loan, and also agreed to borrow up to $37.8 billion of the insurer's investment-grade fixed-income securities in return for cash collateral. More recently, on December 2, AIG announced that an off balance sheet vehicle created by the New York Fed had purchased $46.1 billion of its toxic collaterised debt obligations.

See also: Treasury and Fed help AIG lay-off CDO risk