| Topic: |
Politics > Politics-USA |
| User: |
"dopppelganger" |
| Date: |
27 Jul 2003 09:13:27 PM |
| Object: |
Europe Central Banks Dumping US Debt. |
ECB Recommends Central Banks Sell U.S. Agency Debt, Person Says
July 28 (Bloomberg) -- The European Central Bank is eliminating its
holdings of debt issued by Freddie Mac and Fannie Mae, the two biggest U.S.
providers of mortgage financing, and recommended that its national central
banks do the same, according to a person who has seen the ECB's
recommendation.
The Frankfurt-based central bank, which sets interest rates for the 12
countries sharing the euro, gave its opinion at the last meeting of the
18-member governing council on July 10, said the person who declined to be
named. ECB spokeswoman Regina Schueller declined to comment. Officials of
the 12 central banks declined to comment.
Freddie Mac is under investigation by the U.S. Securities and Exchange
Commission and federal prosecutors after overstating earnings, leading to
the ouster of its top three managers. The difference between yields on
Freddie Mac notes and comparable U.S. government debt has increased this
year as investors perceive Freddie Mac debt to be more risky.
``Some investors will ask themselves: Is this really as safe as I thought
it was? And some will say: This is too risky for me,'' said Louis Hagen,
general manager of the Association of German Mortgage Banks in Berlin.
McLean, Virginia-based Freddie Mac said last month it understated profits
by as much as $4.5 billion during the past three years as it made errors in
applying generally accepted accounting principles in valuing derivatives
contracts. Derivatives are financial obligations tied to the value of debt
and equity securities, commodities and currencies.
The ECB based its recommendation to the national central banks on credit
risk, the person who declined to be identified said.
Freddie, Fannie Decline to Comment
Freddie Mac spokeswoman Heather Sieber declined to comment.
``We do not comment about specific investors,'' Fannie Mae spokesman Jason
Lobo said. ``Our investors are broadly distributed around the world and
those investors include central banks.
Fannie Mae and Freddie Mac own or guarantee about 42 percent of the $7
trillion U.S. mortgage market. Fannie Mae's mortgage portfolio is worth
about $816 billion, while Freddie Mac controls about $573 billion of
mortgages.
The two companies, regulated by the Office of Federal Housing Enterprise
Oversight, are known as government-sponsored enterprises. While the U.S.
government doesn't guarantee any of their obligations, both Fannie Mae and
Freddie Mac have Aaa ratings from Moody's Investors Service and Standard &
Poor's.
No ECB Totals on Agency Debt
Freddie Mac notes maturing in January 2013 traded 43.5 basis points more
than 10-year Treasuries, widening from 26 basis points before the company
announced the management changes, according to J.P. Morgan Securities.
Since June 6, the yield spread widened to as much as 44.5 basis points
before rebounding back to 33 basis points.
ECB doesn't disclose breakdown of its reserves and spokeswoman Schueller
declined to comment on how much U.S. agency debt either the ECB or the 12
national central banks of the nations sharing the euro hold.
The ECB's foreign currency reserves are managed by the euro region's 12
national central banks on the basis of ECB guidelines. The ECB can order
the other central banks what to do with its own reserves, while the
national central banks have control over their own reserves.
The ECB and the national central banks had combined foreign currency assets
of 221.2 billion euros at the end of last week, of which 205.4 billion were
claims on residents outside the euro region.
The region's central banks sold 3.075 billion euros in foreign currency
reserves in the week ended July 18 that were owed to them by residents
outside the euro region, the second- biggest sale in more than a year,
according to Bloomberg calculations based on ECB data.
So-called agency debt held in custody for foreign central banks has
declined in six of the past seven weeks to $183.25 billion from a record
$189.9 billion, according to the Federal Reserve. Foreign central banks
sold $585 million in the week ended July 23, the Fed said.
By comparison, foreign central banks' holdings of U.S. Treasury debt
declined by $3.88 billion in the latest week to $753.74 billion. Those
banks sold $3.27 billion Treasuries in the prior week.
Last Updated: July 27, 2003 19:06 EDT
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aC.i6ebZSE6M&refer=home
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