By Isobel Kennedy

NEW YORK (MNI) – This Thursday, $7 billion of non-agency
residential mortgage assets from the New York Federal Reserve’s Maiden
Lane II portfolio will be out for the bid but it is unclear if the list
will trade and, if so, at what price.

As a reminder, the Fed received a reverse inquiry bid from a large
primary dealer last Thursday for these assets acquired in late 2008 as
collateral for a loan to AIG. Per the Fed’s rules, individual bids are
welcome but the assets must be sold on a competitive basis.

BlackRock is the asset manager for Maiden Lane II and, as such,
will be handling the bidding process. It is believed that all primary
dealers are seeing the list.

The BWIC or bid-wanted-in-competition for the $7 billion in assets
came in on an “all or none” basis and there have been some complaints in
the Street that this is unfair as it reduces the amount of bidders that
can bid for such large size. It also could lower the execution price,
they say.

But one portfolio manager, who invests in this type of paper, said
there is another side to this argument.

“Is it unfair?” he asked, adding that the “piecemeal” process of
selling Maiden Lane II assets from March to June of last year ended up
“harming the market.”

As a reminder, the Fed sold about $9.4 billion in face value from
that portfolio in nine separate BWIC auctions from April to early June
2011.

In the initial stages of the selling last year the process was
considered helpful to the non-agency market because it provided much
needed price discovery. It also provided fresh supply to a market that
was almost dead in the water.

But the Fed’s investment manager, BlackRock Solutions, was
eventually forced to halt these sales because others began selling
similar paper into the market. Eventually the supply overwhelmed the
Street and prices got hurt.

The portfolio manager thinks selling the Maiden Lane portfolio in
larger chunks, such as the current bid for $7 billion, is really better
in the long run for the market.

“I’m not going to cry about it if some dealer takes down all the
paper and piecemeals it out to hedge funds and others,” he said.

And if they make some money in the process, he said, that is okay
too.

If the sale takes place on Thursday, general details of the paper
sold will likely be released on the Fed’s website.

** Market News International New York Newsroom: 212-669-6430 **

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