Monthly Report on Credit and Liquidity Programs
and the Balance Sheet

Lending in Support of Specific Institutions

Quarterly Developments

• Cash flows generated from the Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC portfolios are used to pay down the FRBNY’s loans to those LLCs. For the first quarter of 2011, repayments totaled approximately $3.6 billion, as presented in tables 14, 17, and 20.

Background

During the financial crisis, the Federal Reserve extended credit to certain specific institutions in order to avert disorderly failures that could result in severe dislocations and strains for the financial system as a whole and harm the U.S. economy. In certain other cases, the Federal Reserve committed to extend credit, if necessary, to support important financial firms.

Bear Stearns and Maiden Lane LLC

Recent Developments

• The repayments of the senior loan extended by the FRBNY to Maiden Lane LLC totaled $1.8 billion during the period from March 31 to May 25, 2011.

Background

In March 2008, the FRBNY and JPMorgan Chase & Co. (JPMC) entered into an arrangement related to financing provided by the FRBNY to facilitate the acquisition by JPMC of The Bear Stearns Companies Inc. (Bear Stearns). In connection with the transaction, the Federal Reserve Board authorized the FRBNY, under Section 13(3) of the Federal Reserve Act, to extend credit to a Delaware limited liability company, Maiden Lane LLC, to partially fund the purchase of a portfolio of mortgage-related securities, residential and commercial mortgage loans, and associated hedges from Bear Stearns. In the second quarter of 2008, the FRBNY extended credit to Maiden Lane LLC. The LLC manages its assets through time to maximize the repayment of credit extended to the LLC and to minimize disruption to the financial markets.

The two-year accumulation period that followed the closing date for Maiden Lane LLC ended on June 26, 2010. Consistent with the terms of the Maiden Lane LLC transaction, the distribution of the proceeds realized on the asset portfolio held by Maiden Lane LLC, after payment of certain fees and expenses, will occur on a monthly basis going forward unless otherwise directed by the Federal Reserve. The monthly distributions will be used to cover the expenses and repay the obligations of the LLC, including the principal and interest on the loan from the FRBNY.

The assets of Maiden Lane LLC are presented weekly in tables 1, 8, and 9 of the H.4.1 statistical release. Additional details on the accounts of Maiden Lane LLC are presented in table 4 of the H.4.1 statistical release. Details of the terms of the loan, as well as information on the holdings of the Maiden Lane LLC, including the CUSIP number, descriptor, and the current principal balance or notional amount outstanding for nearly all of the holdings of Maiden Lane LLC with the exception of residential whole loans, is published on the FRBNY website at www.newyorkfed.org/markets/maidenlane.html.

Information about the assets and liabilities of Maiden Lane LLC is presented as of March 31, 2011, in tables 14 through 16 and figure 2. This information is updated on a quarterly basis.

Table 13. Fair value asset coverage of FRBNY loan
Millions of dollars

Table 14. Maiden Lane LLC outstanding principal balance of loans
Millions of dollars

Table 15. Maiden Lane LLC summary of portfolio composition, cash and cash equivalents, and other assets and liabilities
Millions of dollars

Table 16. Maiden Lane LLC securities distribution by sector and rating
Percent, as of March 31, 2011

Figure 2. Maiden Lane LLC securities distribution as of March 31, 2011

AIG, Maiden Lane II LLC, and Maiden Lane III LLC

Recent Developments

• The repayments of the senior loans extended by the FRBNY to Maiden Lane II LLC and Maiden Lane III LLC totaled $1.8 billion and $0.4 billion, respectively, during the period from March 31 to May 25, 2011.
• On March 30, 2011, the Federal Reserve announced that the FRBNY, through its investment manager, BlackRock Solutions, will dispose of the securities in the ML II portfolio individually and in segments through a competitive sales process over time as market conditions warrant. As of June 9, 2011, nine bid list auctions had been conducted and assets with a total current face amount of $9.96 billion had been sold. Additional information is available at www.newyorkfed.org/markets/MLII/maidenlane.cfm.

Background

On September 16, 2008, the Federal Reserve, with the full support of the Treasury, announced that it would lend to American International Group, Inc. (AIG) to prevent a disorderly failure of this systemically important firm, protect the financial system and the broader economy, and provide the company time to restructure its operations in an orderly manner. At that time, the Federal Reserve, under the authority of Section 13(3) of the Federal Reserve Act, authorized the FRBNY to extend an $85 billion line of credit (the “revolving credit facility”) to AIG. The Federal Reserve and the Treasury subsequently restructured the government’s financial support to AIG as follows:

• On November 10, 2008, the Federal Reserve and the Treasury announced a restructuring as part of which the line of credit extended to AIG was reduced from $85 billion to $60 billion, and which included Federal Reserve loans to two new LLCs, Maiden Lane II LLC and Maiden Lane III LLC. (On October 8, 2008, the Board of Governors authorized the FRBNY to extend credit under a securities borrowing facility to certain AIG subsidiaries. This arrangement was discontinued after the establishment of the Maiden Lane II facility.) More detail on these LLCs is reported below. Additional information is included in tables 5 and 6 of the H.4.1 statistical release.
• On March 2, 2009, the Federal Reserve and Treasury announced a further restructuring of the government’s assistance to AIG, designed to enhance the company’s capital and liquidity in order to facilitate the orderly completion of the company’s global divestiture program. As part of this restructuring, the FRBNY received preferred interests in two special purpose vehicles (SPVs), AIA Aurora LLC and ALICO Holdings LLC, (the “SPV Preferred Interests”) in exchange for an equivalent reduction of the amount of debt then outstanding on the revolving credit facility. Additional information on the March 2009 restructuring is available at www.federalreserve.gov/newsevents/press/other/20090302a.htm.

On September 30, 2010, AIG announced a comprehensive recapitalization plan (the “Recapitalization”) designed to restructure the assistance provided by the U.S. government to the company. The company completed the Recapitalization on January 14, 2011. At closing of the Recapitalization, AIG repaid in full the amount then outstanding under the revolving credit facility established by the FRBNY, including all accrued interest and fees. The FRBNY also received the full amount, including all accrued dividends, of the SPV Preferred Interests. AIG redeemed a portion of the FRBNY’s SPV Preferred Interests with cash proceeds from asset dispositions, and purchased the remaining SPV Preferred Interests, valued at approximately $20 billion, from the FRBNY though a draw on the Treasury’s Series F preferred stock commitment. AIG then transferred the SPV Preferred Interests purchased from the FRBNY to the Treasury as consideration for the draw on the available Series F funds. At closing, the collateral backing the remaining SPV Preferred Interests received by the Treasury had an estimated value of more than $25 billion.

A comprehensive overview of financial assistance provided to AIG is available online at www.federalreserve.gov/monetarypolicy/bst_supportspecific.htm.

Maiden Lane II LLC

Pursuant to authority granted by the Federal Reserve Board under Section 13(3) of the Federal Reserve Act, on December 12, 2008, the FRBNY lent approximately $19.5 billion to a newly formed Delaware limited liability company, Maiden Lane II LLC, to partially fund the purchase of residential mortgage-backed securities (RMBS) from the securities lending portfolio of several regulated U.S. insurance subsidiaries of AIG. Maiden Lane II LLC acquired the RMBS, which had an aggregate par value of approximately $39.3 billion, at the then-current market value of approximately $20.8 billion, which was substantially below par value.⁴ The full portfolio of RMBS held by Maiden Lane II LLC serves as collateral for the Federal Reserve’s loan to Maiden Lane II LLC. AIG’s insurance subsidiaries also have a $1 billion subordinated position in Maiden Lane II LLC that is available to absorb first any losses that may be realized.

On March 30, 2011, the Federal Reserve announced that the FRBNY, through its investment manager, BlackRock Solutions, will dispose of the securities in the ML II portfolio individually and in segments through a competitive sales process over time as market conditions warrant. A monthly review for asset sales from Maiden Lane II LLC is available at www.newyorkfed.org/markets/maidenlane.html#dispositionofmaidenlaneIIassets.

The net portfolio holdings of Maiden Lane II LLC are presented in tables 1, 8, and 9 of the weekly H.4.1 statistical release. Additional detail on the accounts of Maiden Lane II LLC is presented in table 5 of the H.4.1 statistical release. Detailed information on the terms of the loan, the holdings of Maiden Lane II LLC (including the CUSIP number, descriptor, and the current principal balance or notional amount outstanding for all the positions in the portfolio), and the disposition of Maiden Lane II assets is published on the FRBNY website at www.newyorkfed.org/markets/maidenlane.html#maidenlane2.

Information about the assets and liabilities of Maiden Lane II LLC is presented as of March 31, 2011, in tables 17 through 19 and figure 3. This information is updated on a quarterly basis.

Table 17. Maiden Lane II LLC outstanding principal balance of senior loan and fixed deferred purchase price
Millions of dollars

Table 18. Maiden Lane II LLC summary of RMBS portfolio composition, cash and cash equivalents, and other assets and liabilities
Millions of dollars

Table 19. Maiden Lane II LLC securities distribution by sector and rating
Percent, as of March 31, 2011

Figure 3. Maiden Lane II LLC securities distribution as of March 31, 2011

Maiden Lane III LLC

Pursuant to authority granted by the Federal Reserve Board under Section 13(3) of the Federal Reserve Act, the FRBNY in November and December 2008, lent approximately $24.3 billion to a newly formed Delaware limited liability company, Maiden Lane III LLC, to fund the purchase of certain asset-backed collateralized debt obligations (ABS CDOs) from certain counterparties of AIG Financial Products Corp. (AIGFP) on which AIGFP had written credit default swaps and similar contracts. Maiden Lane III LLC acquired these CDOs, which had an aggregate par value of approximately $62.1 billion, at the then-current market value of approximately $29.6 billion, which was substantially below par value.⁵ The full portfolio of CDOs held by Maiden Lane III LLC serves as collateral for the Federal Reserve’s loan to Maiden Lane III LLC. AIG together with an AIG subsidiary also have a $5 billion subordinated position in Maiden Lane III LLC that is available to absorb first any losses that may be realized. Assets of the portfolio of the LLC will be managed to maximize cash flows to ensure repayment of obligations of the LLC while minimizing disruptions to financial markets.

The net portfolio holdings of Maiden Lane III LLC are presented in tables 1, 8, and 9 of the weekly H.4.1 statistical release. Additional detail on the accounts of Maiden Lane III LLC is presented in table 6 of the H.4.1 statistical release. Information on the holdings of the Maiden Lane III LLC, including the CUSIP number, descriptor, and the current principal balance or notional amount outstanding for all the positions in the portfolio, is published on the FRBNY website at www.newyorkfed.org/markets/maidenlane3.html.

Information about the assets and liabilities of Maiden Lane III LLC is presented as of March 31, 2011, in tables 20 through 22 and figure 4. This information is updated on a quarterly basis.

Table 20. Maiden Lane III LLC outstanding principal balance of senior loan and equity contribution
Millions of dollars

Table 21. Maiden Lane III LLC summary of portfolio composition, cash and cash equivalents, and other assets and liabilities
Millions of dollars

Table 22. Maiden Lane III LLC Securities Distribution by CDO Sector, Vintage, and Rating
Percent, as of March 31, 2011

Figure 4. Maiden Lane III LLC securities distribution as of March 31, 2011

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