Tags: overseas | investors

Freddie Mac: Foreigners Biding Their Time Over Debt

Wednesday, 24 Sep 2008 09:34 AM

TOKYO -- Freddie Mac's treasurer said on Wednesday that overseas investors were taking a wait-and-see stance toward U.S. agency debt due to volatility and uncertainty, but added that this did not signify a loss of confidence.

"You're in this backdrop of just incredible volatility," said Timothy Bitsberger, Senior Vice President & Treasurer for mortgage finance firm Freddie Mac.

"The whole world is changing...and the whole financial services landscape is changing. No one is quite sure how it's going to evolve and how it's going to end up yet," Bitsberger told Reuters in an interview on the sidelines of a Euromoney conference in Tokyo.

"I don't think we've lost investors' confidence in our debt. I think what all investors want to see is just clarification and specificity as to what the future is going to bring," he said, adding that Asian investors in particular, seemed content to sit back and wait for now.

The U.S. government seized control of mortgage finance companies Fannie Mae and Freddie Mac earlier this month, in a bid to support the U.S. housing market and ward off more global financial market turbulence.

As part of the plan, which was prompted by worries over the companies' shrinking capital, the U.S. Treasury Department took $1 billion of preferred senior stock in each company, and its equity stake could reach as much as $100 billion in each firm.

The Treasury will also purchase mortgage-backed securities issued by the government-sponsored entities (GSEs) and will extend a credit line to them.

"Agency mortgages and agency debt are both protected by the $100 billion in preferred stock," Bitsberger said.

The upheaval in the U.S. financial sector has persisted in wake of the bailout of Freddie Mac and Fannie Mae. Lehman Brothers has since filed for bankruptcy protection, Merrill Lynch lost its independence, and insurer AIG was saved by an $85 billion bailout, while Morgan Stanley and Goldman Sachs ceased to operate as investment banks.

The U.S. government's decision to take over Fannie Mae and Freddie Mac was unveiled less than two months away from the U.S. presidential election, and leaves the ultimate fate of Fannie Mae and Freddie Mac in the hands of the next president.

When asked whether the creditworthiness of agency debt could be affected if the business model for the mortgage finance firms were to be changed in the future, Bitsberger said: "If we assume that the companies are not liquidated, and I think it will be hard to imagine them liquidated in this environment, where we're so needed, then I think the $100 billion is legally binding regardless of the circumstances."

Earlier, Bitsberger stressed this point in a speech at the Euromoney conference.

"This agreement is legally binding and will protect debt and mortgage holders issued both prior to and after December 2009, regardless of who wins the November presidential election," he said in his speech.

In the interview with Reuters, Bitsberger said he had no comment on a CNN report saying the FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc and insurer American International Group Inc and their senior executives for potential mortgage fraud.

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