fed transparency at work - Maiden Lane 2 version

Reuters IFR: Bankers decry Fed's secrecy in Maiden Lane auction

LONDON, Jan 19 (IFR) -

• Fed chooses secrecy in new Maiden Lane II bidding process
• Strictly confidential, limited auction angers those left out ; Credit Suisse wins

A new, privately arranged process used by the Federal Reserve Bank of New York this week to accept highly confidential bids from only four broker-dealers for US$7bn of its Maiden Lane II portfolio raised the ire of other market players shut out of what they call a glaringly non-transparent strategy.
    Credit Suisse ultimately won the auction today, buying US $7.014bn in face value from the approximately US $20bn remaining in the MLII portfolio of distressed RMBS assets formerly owned by AIG. The portfolio originally had a face value of more than US $30bn, but about US $9.5bn was sold in a public auction process last spring that eventually fizzled and was halted indefinitely.
    "I am pleased with the strength of the bids and the level of market interest in these assets," said William C. Dudley, President of the New York Fed, in a prepared statement on Thursday.
    The latest auction was prompted by an initial reverse inquiry from Goldman Sachs, but the Fed opted to honor an original commitment it laid out in March 2011 to adhere to a competitive process to dispose of the former AIG-owned distressed securities. It therefore opened up the bid to a limited pool of market players.
    As IFR first reported last Friday, America’s largest regional Federal Reserve Bank took bids on the MLII parcel from only four banks: Goldman Sachs, Barclays Capital, Bank of America Merrill Lynch, and Credit Suisse. The auction was tightly under wraps when it started today, as the Fed required the dealers, as well their investor accounts, to sign strict non-disclosure agreements (NDAs) regarding the specific bonds and prices on the bid list.
    "I just don't see how running a limited participation secret auction ensures that the taxpayer receives maximum proceeds for their bonds,"; said Adam Murphy, the president of Empirasign Strategies LLC, a capital markets data provider. "This auction seems inconsistent with the more open Fed that Bernanke espouses.";
    At the height of the financial crisis, the Fed bought the securities in order to rescue AIG. It was Goldman Sachs' collateral calls on CDS insured by AIG that sunk the company. Even though it didn't ultimately win the auction, Goldman is viewed as the bank driving the latest burst of interest in MLII, given its initial reverse inquiry.    The Fed's abrupt change of course towards a non-disclosed process irked many who were left out in the cold, according to several traders and asset managers. The strategy is in stark contrast to the more public tack taken last spring.

    The Fed sold US$9.5bn, or about one-third, of the more than US$30bn portfolio via nine auctions that took place between April 6 and June 9 of last year, but interest started to wane as the increased supply drove bond prices down and global macroeconomic volatility led to a vast de-risking event as investors dumped spread product.
    The Fed has long indicated that it never committed to any timetable or schedule for winding down the portfolio of former AIG assets, and was only looking to achieve the best execution possible.
    But now, secondary non-agency RMBS paper is on average 30 cents cheaper than last spring, spurring demand for the product once again.
     "This MLII thing is a mess,"; said one securitization specialist away from the four bidding banks canvassing the market in a struggle to find the bonds on the list. "(It's) A complete insider deal orchestrated by those responsible for AIG's collapse in the first place. Hedge funds have to sign an NDA just to see the bonds on the list."
    A spokesman for the Fed declined comment. However, a press release stated that the pricing for each bond will be disclosed three months after the last ML II asset is sold, "ensuring timely accountability without jeopardizing the ability to generate maximum sale proceeds for the public."

And so what did Credit Suisse do with the ML 2 assets bought..... they immediately started flipping them with the notion they will hold little or none of them ! 

http://www.cnbc.com/id/46073791/Credit_Suisse_already_sold_some_Maiden_Lane_bonds

NEW YORK, Jan 20 (Reuters) - Credit Suisse found homes for some of the $7 billion of mortgage bonds it was awarded on Thursday from an auction held by the New York Federal Reserve, a company spokesman said on Friday. The Swiss bank has already placed a significant portion of the securities with a broad mix of investors and will continue to distribute the securities into the marketplace, Credit Suisse spokesman Steven Vames said. Credit Suisse's purchase represents about a third of the New York Fed's Maiden Lane II portfolio's total face value. The portfolio contain securities it acquired in the bailout of insurer American International Group in 2008. Goldman Sachs, Barclays Capital and Bank of America's Merrill Lynch unit also bid for the bonds, which are backed by subprime mortgages. Credit Suisse plans to retain little or none of the Maiden Lane securities, Vames said. There is no timetable for when the New York Fed will hold the next bidding for the rest of the Maiden Lane II securities. The New York Fed's Maiden Lane II sale coincided with signs of an improving U.S. economy, although the housing market, whose meltdown led to the worse U.S. recession in 70 years, has continued to struggle. In their outlook on the U.S. housing market released on Thursday, Credit Suisse analysts forecast home prices could fall 7 percent in 2012. (Reporting by Richard Leong; Editing by Dan Grebler) Keywords: CREDITSUISSE/MBS MAIDENLANE (richard.leong@thomsonreuters.com)(+1 646 303 6313)(Reuters Messaging: richard.leong.thomsonreuters.com@thomsonreuters.net) COPYRIGHT Copyright Thomson Reuters 2012. All rights reserved.