China's Four Largest Banks Trimming Fannie, Freddie Debt Holdings -WSJ

September 3, 2008 10:46 AM EDT

A Wall Street Journal article published this morning discusses a recent reduction of Chinese bank investments in Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). According to the article, China's four largest banks -- Bank of China, China Construction Bank, Bank of Communications Co. and Industrial & Commercial Bank of China -- have hinted in recent earnings conferences that they have pared back their holdings in debt related to the two U.S. mortgage companies.

Bank of China said that it trimmed its holdings in Fannie and Freddie from about $23 billion at the end of 2007 to $17.3 billion at the end of June and to $12.7 billion most recently, which was as of August 25. At the same time, China Construction Bank said its holdings went from about $3.2 billion at the end of June to just above $2 billion a month later, Bank of Communications liquidated its $27 million in holdings in July and Industrial Commercial Bank of China said it help $2.7 billion of Fannie and Freddie debt at the end of June.

While many consider Fannie and Freddie's debt "relatively safe", most analysts believe the large banks are cutting their holdings in order to be cautious in this turbulent global market.

Fannie Mae provides funds to mortgage lenders through the purchase of mortgage assets, and issues and guarantees mortgage-related securities that facilitate the flow of funds into the mortgage market in the United States.

Freddie Mac engages in mortgage purchasing, credit guarantee, and portfolio investment activities in the United States.

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