September 3rd Wall Street Journal

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September 3rd Wall Street Journal Powered By Docstoc
					September 3rd Wall Street Journal
Chinese banks holdings of the "two rooms" Bond
Have been reduction of mortgage-related securities of U.S. large Chinese banks are
facing more and more difficult choices: how to invest its considerable foreign

Fear of Fannie Mae (Fannie Mae) and Freddie (Freddie Mac) the prospect of
China's four biggest listed banks have holdings with the two giant U.S.
mortgage-related bonds. Close by the end of June, the four banks held a total of 23.28
billion U.S. dollars from the Fannie Mae and Freddie Mac bonds issued or guaranteed.
This figure is four Chinese-funded banks trillions of dollars in assets account for only
a small fraction, but because of its holdings may Bei market such bonds as reflecting
the prevailing view of a scale, Yin Er have attracted people's attention.

?In the recent earnings conference, several Chinese-funded banks have said that since
June has been reduced holdings of Fannie Mae and Freddie Mac investments. Four
banks holding Fannie Mae and Freddie Mac securities up to the Bank of China
Limited (Bank of China Ltd., Referred to as: Bank of China) said that its closing on
June 30, some 17.3 billion U.S. dollars held by the "two rooms"
Securities has 4.6 billion U.S. dollars by sale or maturity, while the end of last year
held more than 20 billion U.S. dollars of such securities.

China Construction Bank (China Construction Bank Corp., Called: CCB), said
closing the end of July, which has been held by Fannie Mae and Freddie Mac bonds
from June's 3.2 billion U.S. dollars to 20 billion. Bank of Communications
Co., Ltd. (Bank of Communications Co., Referred to as: Bank of Communications)
early in July sold its entire holding of 2,700 million U.S. dollars "two
rooms" bonds. China's largest lender Industrial and Commercial
Bank of China Ltd. (Industrial & Commercial Bank Of China Ltd., Referred
to as: Industrial and Commercial Bank of China) said it ended by the end of June
holds a 2.7 billion U.S. dollars of GSE bonds, but did not provide comparative data
with the previous month .

Analysts believe that these banks might have committed mistakes too cautious, they
cut their holdings of GSE bonds to please shareholders, and reduce the visibility of
their concerns about earnings prospects. Although Fannie Mae and Freddie Mac stock
this year, defeated, but their bond is generally considered relatively low risk.

CCB President Zhang Jianguo told reporters last week, Fannie Mae and Freddie Mac
bonds are relatively safe. Bank of China president Li Lihui said that the U.S.
government has made it clear that the two companies would help guarantee the bonds.
Bank of China Vice President Zhu Min said the economic downturn in the global
environment, the company will prudently manage foreign exchange assets.

Because U.S. Treasury bonds and other low-risk investment tools meager earnings,
continued instability in major stock market, attractive investment options in foreign
exchange has been less and less, and away from Fannie Mae and Freddie Mac to
make investment choices to further reduce debt. Analysts said that as the growth of
most developed economies is expected to further slow this year, the global investment
environment is unlikely to improve anytime soon.

Chinese banks have very substantial funds available for allocation to overseas. Close
by the end of June, the Bank of China has 2,400 million U.S. dollars of overseas
assets, other foreign assets, the three banks totaled 2,190 billion.

Some analysts said that Chinese banks extended loans in foreign exchange business is
good. In many Western lending institutions because of lack of funds when the credit
crisis, Chinese banks are has a lot of liquidity, which may have the strength to seize
market share in corporate loans.

Fox-Pitt, Kelton (Asia) Ltd.'s Banking analyst Mr Whyte (Warren Blight)
said that they must find a way to configure their own liquidity, the current national
debt does not seem profitable, but because of lack of credit, they more can be
syndicated loans or even direct corporate loans, this rate of return and spread more
and more attractive.

Analysts said the syndicated loan is a rare bright spot in one of the banking business,
in part because of higher bond yields make borrowing company to avoid issuing
bonds. Will be more overseas funds for corporate lending would help the Chinese
banks have accumulated international experience.

CSC Co., Ltd. (China Securities Co.) Banking analyst She said Hua Min, given that
many Chinese companies are seeking overseas expansion, which is sufficient funds to
carry out large-scale syndicated bank loans good opportunities.

Earlier this year, Bank of China has established three centers in the world, responsible
for the global syndicated loan business. Bank of China has been involved in a number
of small but noteworthy syndicated loan transactions, including a 592 million U.S.
dollars in Indonesia's trading, the Bank rate of the other 17 banks for a
power station projects. Bank of China, a unit of BOC Hong Kong (Holdings) Limited
(BOC Hong Kong (Holdings) Ltd.) Participated in the telecom operator PCCW
Limited (PCCW Ltd.) A 30-billion refinancing plan.

China Pulls Back From Fannie, Freddie
China's big banks, having trimmed their holdings of US mortgage-related
debt, are facing increasingly difficult decisions about how to invest their sizable
foreign-currency holdings.

Amid jitters about the future of Fannie Mae and Freddie Mac, China's four
biggest listed banks have pared back their holdings in debt related to the two US
mortgage giants. At the end of June, the four banks held a combined $ 23.28 billion of
debt issued or guaranteed by Fannie and Freddie. That's a small fraction of
the trillions of dollars outstanding, but the reductions attracted interest as a possible
gauge of broader sentiment toward such securities.

In earnings conferences in recent days, several Chinese banks said they had trimmed
their Fannie and Freddie portfolios since June. Bank of China Ltd., By far the largest
holder of Fannie and Freddie securities among the four big banks, said it had sold or
allowed to mature $ 4.6 billion of the $ 17.3 billion it held as of June 30 - which was
down from more than $ 20 billion at the end of last year.

China Construction Bank Corp. Said it had cut its Fannie and Freddie holdings to just
above $ 2 billion by the end of July, down from $ 3.2 billion a month earlier. Bank of
Communications Co. Sold all of its $ 27 million in holdings in early July. Industrial
& Commercial Bank of China Ltd., the country's biggest lender,
said it held $ 2.7 billion worth of Fannie-and Freddie-related debt at the end of June,
but didn't provide a comparison with previous months.

Analysts said the banks were likely erring on the side of caution, paring their holdings
to please investors and ease concerns about their earnings outlook. While
Fannie's and Freddie's shares have been battered this year, their
debt generally is still considered relatively low-risk.

Zhang Jianguo, Construction Bank's president, told reporters last week that
bonds issued by Fannie and Freddie are still 'relatively safe.'
The US government 'has already made clear its guarantee' of the
two companies' debt, Bank of China President Li Lihui said . Zhu Min, a
Bank of China vice president, said the company 'will adopt a cautious
stance' in managing its foreign-exchange assets amid global economic

The shift away from Fannie and Freddie debt further reduces an already dwindling
array of attractive foreign-currency investment options, with meager returns on
low-risk instruments like US Treasuries and continued instability in major stock
markets. Because most developed economies are expected to slow further this year,
the global investment climate is unlikely to improve soon, analysts said.
China's banks have significant overseas funds to deploy. Bank of China
had $ 240 billion of overseas assets at the end of June, while the other three big
lenders had a combined total of $ 219 billion.

Some analysts said they see merit in Chinese banks expanding their foreign-currency
loan businesses. They have lots of liquidity as many Western institutions are squeezed
by the credit crisis, so the Chinese banks may be able to pick up market share in
lending to attractive companies .

'They have to deploy their liquidity in some way and at the moment
Treasurys don't look very lucrative,' said Warren Blight, a
banking analyst at Fox-Pitt, Kelton (Asia) Ltd. 'But with credit so scarce,
they can do a bit more syndicated lending or even direct corporate lending as yields
and spreads are getting more attractive on that front. '

Syndicated lending is one of the few bright spots in the banking business, analysts
said, in part because borrowers have shied away from issuing debt in the face of
higher yields. Using more of their overseas funds for corporate lending would help
build Chinese banks' international experience.

'Given the fact that a lot of Chinese companies are seeking overseas
expansion, it's a good opportunity for cash-rich big Chinese banks to
develop a syndicated-loan business,' said She Minhua, a banking analyst at
China Securities Co.

Bank of China set up three centers earlier this year to manage its syndicated-loan
business around the world. It has been involved in a handful of small but noteworthy
syndicated-loan deals, including a $ 592 million deal in Indonesia in which it led a
group of 17 other banks to finance a power project. Its BOC Hong Kong (Holdings)
Ltd. unit participated in a planned $ 3 billion refinancing facility for telecom operator

Rose Yu / Amy Or
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