Friday, July 9, 2010

China Owns Over USD300bn Fannie Mae, Freddie Mac Bonds

BEIJING, Jul 08, 2010 (SinoCast Daily Business Beat via COMTEX) -- As one of the most active buyers of the bonds of Fannie Mae (FNM.N) and Freddie Mac (FRE.N), China is expected to suffer a great loss.

According to a report by standard and Poor's, Chinese financial institutions currently hold a total of USD 340 billion such bonds. They sold approximately USD 100 billion U.S. agency bonds after the nation's subprime crisis and so far, they still own over USD 500 billion such bonds, of which about 80 percent are issued by Fannie Mae and Freddie Mac.

China Investment Corp. and the State Administration of Foreign Exchange were warned of risk arising from bonds of the two companies. However, US dollar assets, with strong liquidity in the international financial market before the global financial crisis, is one of the best choices for almost all nations in the world to invest in and there is no exception to China, Ying Zhanyu, a senior professor at Central University of Finance and Economics, said in an interview. In his opinion, how much China will suffer from the bonds will mainly depend on attitude of the U.S. government.

Both Fannie Mae and Freddie Mac on June 16 were urged to delist their shares on the New York Stock Exchange after Fannie Mae fell below and Freddie Mac held near minimum price requirement USD 1. Fannie Mae and Freddie Mac's market value totaled USD 1 billion before they delisted shares on the New York bourse, with core assets of about USD 70 billion and bonds of USD 5.2 trillion.

Both companies' share prices fluctuated at about USD 1 when they were taken over by the U.S. government in September 2009 and during the 30 trading days ended June 16 this year, Fannie Mae fell below USD 1 and Freddie Mac held near USD 1, compared to their record highs of USD 99 and USD 48 in September 2007. The U.S. government has injected USD 145 billion into them since the 2008 financial crisis, however, the capital seems not to work. Both companies reported a combined loss of USD 93.6 billion for 2009 and USD 18.2 billion for the first quarter of this year.

According to the Congressional Budget Office (CBO), provided that the government plans to allow them to operate as usual, it will have to infuse at least USD 389 billion into them from 2009 to 2019. The figure will hit USD 1 trillion if the country's home price fall continues. Song Hongbing, a Chinese who once served for both companies, predicts that the figure may touch USD 1.5 trillion to USD 2 trillion.

(USD 1 = CNY 6.77) Source: www.dayoo.com (July 08, 2010) bank islam personal loan
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