Jeremy Bales/Bloomberg NewsThe American International Group building in Manhattan.Big banks, gearing up for a bidding war on assets tied to the collapse of the American International Group, have created unlikely alliances to mount offers for what was once viewed as the dregs of Wall Street.
Barclays and Deutsche Bank formed the latest partnership on Wednesday, according to a letter to investors obtained by DealBook, following similar deals struck this week among other titans of finance. Goldman Sachs, Citigroup and Credit Suisse were the first to team up, while Bank of America recently formed a union with Morgan Stanley. Nomura, the Japanese firm, also joined forces with Bank of America on Wednesday.
At the height of the financial crisis, the Federal Reserve Bank of New York created a special entity, known as Maiden Lane III, to take on nearly $30 billion in assets from Wall Street banks. The banks, including some of the same institutions that are now bidding, had bought insurance on the assets from A.I.G. But the insurer could not post sufficient collateral to honor the policies as it struggled to survive.
As Maiden Lane III came to the rescue, saving the banks from major losses on the securities known as collateralized debt obligations, the move was seen as a backdoor bailout of Wall Street.
On Thursday, the New York Fed will auction the so-called MAX C.D.O., a package of commercial real estate securities, to the highest bidder. It is the latest effort to whittle down the bailout of A.I.G., which received a $182 billion federal lifeline to stay afloat.
The alliance of Barclays and Deutsche Bank could have the upper hand. Barclays, the big British bank, is already party to a contract tied to the MAX C.D.O. The contract would have to be unwound if the winning bidder decided to chop up the C.D.O. and sell its various parts to investors. Deutsche Bank, meanwhile, owns slices of the C.D.O.
Until the auction begins Thursday morning, Barclays and Deutsche Bank are soliciting bids of their own from investors who are interested in buying the underlying securities. The investors have until 8 a.m. to file their bids with either Barclays or Deutsche Bank.
BlackRock Solutions, an arm of the giant asset manager, will then conduct the bidding process with all the banks. Ultimately, the New York Fed will decide what securities, if any, to sell. The determination, the New York Fed said, will depend on the “strength of the best bid.”
The auction is connected to a broader effort to unwind the insurer’s lifeline from the government, which still holds a roughly 70 percent stake in the company. The Treasury Department, for instance, recently sold $6 billion worth of A.I.G. stock and the insurer repaid $8.5 billion in other obligations to the government.