The central bank said yesterday it did not own any common or preferred shares of Freddie Mac or Fannie Mae, whose credit ratings were downgraded to near junk status, leading pundits to voice worries that the twist could deal another blow to the stock market.
The top monetary regulator remained mum on whether it was in possession of bonds linked to the US mortgage finance giants except to repeat that there was no credit issue for their bonds because they are backed by the US government, unlike their shares.
US government-sponsored enterprises Freddie and Fannie touch nearly half of mortgages in the US by either owning or guaranteeing them. The debt securities they issue to finance their operations are widely owned by foreign governments, pension funds, mutual funds, big companies and other large institutional investors.
“The central bank does not own any Fannie Mae or Freddie Mac shares,” it said in an e-mailed statement. “The two companies’ bonds still enjoy top credit ratings despite their [ongoing] financial woes.”
The central bank also said that its governor, Perng Fai-nan (彭淮南), did not speak to any media on Saturday.
The Chinese-language Economic Daily yesterday quoted an unnamed financial official as saying the credit downgrade would raise risks for domestic financial institutions with portfolios related to Fannie and Freddie.
The financial industry, yet to recover from the subprime mortgage crisis, may suffer more losses tied to Fannie and Freddie, which issued US$5.2 trillion worth of bonds, the daily warned. It also said that authorities would ask local lenders to update their exposure figures.
The central bank said the investments at issue were primarily long-term mortgage-backed securities whose credit ratings remain top graded.
“The US government has announced measures, including acquisition, to help sustain the two institutions, aware of the central role they play in the nation’s housing sector,” the central bank said.
Together, Fannie and Freddie sponsor 70 percent of US mortgage loans, said the central bank.
Last month, the bank said that it only purchased government bonds and labeled the pair’s debts as semi-official in nature.
The comment failed to prevent the local bourse from plunging for several days last month on allegations the central bank stakes NT$900 billion (US$28.84 billion) of foreign reserves in Fannie and Freddie securities.
Domestic financial service providers reported NT$700 billion (US$21.73 billion) in investment connected to the two ailing institutions, with Cathay Financial Holding Co (國泰金控) posting NT$239.14 billion in exposure, topping other rivals.
Shin Kong Financial Holding Co (新光金控) filed the second highest exposure at NT$140 billion.
The central bank said the value of the bonds in its possession far exceeded that of their costs, meaning it remained financially robust.
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