Maiden Lane Transactions refers to three limited liability companies created by the Federal Reserve Bank of New York in 2008 as a financial vehicle to facilitate transactions involving three entities: the former Bear Stearns company as the first entity, the lending division of the former American International Group (AIG) as the second, and the former AIG's credit default swap division as the third. The name Maiden Lane was taken from a street which runs beside New York Federal Reserve in Manhattan.[1]
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Maiden Lane LLC was created when JPMorgan Chase took over Bear Stearns in early 2008. It holds an asset portfolio that JPMorgan found too risky to assume in whole, and consequently the Federal Reserve Bank of New York extended a $30 billion credit line to the limited liability company to facilitate the unwinding of these assets over time. Bloomberg, citing Bank of America analysts, reported on October 2, 2008, that the Federal Reserve might stand to lose $2 to $6 billion on the asset porfolio. An October 7, 2010 update to the Federal Reserve balance sheet, as of October 6, 2010, reported the fair market value of net portfolio holdings were valued at $28.478 billion.[2][3][4]
Maiden Lane was organized as Delaware Limited Liability Company on April 29, 2008,[5] and registered to do business as a foreign limited liability company in the state of New York on June 26, 2008.[6] The registered agent of Maiden Lane LLC is the CT Corporation.
After AIG was taken over by the U.S. government in September 2008 the holding companies Maiden Lane II LLC and Maiden Lane III LLC were created with $19.5 billion and $24.3 billion loans from Federal reserve.
Maiden Lane II LLC aims to purchase residential mortgage-backed securities (RMBS) held by AIG's subsidiaries which were considered very risky. On December 12, 2008, the Federal Reserve Bank of New York began extending credit to Maiden Lane II LLC. An October 7, 2010 update to the Federal Reserve balance sheet, as of October 6, 2010, reported the fair market value of net portfolio holdings were valued at $15.847 billion.[2]
A news story dated March 16, 2009,[7] stated Maiden Lane II used billions in bailout money to purchase toxic assets, and that AIG used billions to pay other banks, including foreign banks--France's Societe Generale at $11.9 billion, Germany's Deutsche Bank at $11.8 billion, and Britain's Barclays PLC at $8.5 billion. AIG, through this fund also funneled significant bailout money to U.S. banks that had already been bailed out under Troubled Asset Relief Program. As AIG counterparties, Goldman Sachs got $12.9 billion, Bank of America got $5.2 billion, and Citigroup got $2.3 billion all at 100% on the dollar.
AIG collected premiums from counterparties by entering into credit default swap contracts on collateralized debt obligations (CDOs). During the third quarter of 2007 and continuing through 2008, the market value of the CDOs underlying these swap contracts fell. As the value of the underlying CDOs fell, AIG had to honor the credit default swap contracts and make collateral payments. During the nine months ending September 30, 2008, AIG posted in excess of $52 billion of collateral to counterparties.[8] Maiden Lane III LLC aims to purchase these multi-sector CDOs in order to provide a cap on AIG's collateral payments. On November 25, 2008, the Federal Reserve Bank of New York began extending credit to Maiden Lane III LLC. An October 7, 2010 update to the Federal Reserve balance sheet, as of October 6, 2010, reported the fair market value of net portfolio holdings were valued at $23.003 billion.[2]