Russia says happy to hold $100 bln U.S. agency debt

MOSCOW Sat Jul 12, 2008 11:47am EDT

MOSCOW (Reuters) - Russia, a holder of about $100 billion in U.S. agencies' debt, including securities of Fannie Mae and Freddie Mac, said on Saturday it was happy to hold the debt and had no immediate plans to reallocate.

"Debt obligations of Fannie Mae and Freddie Mac are de-facto not inferior to U.S. sovereign debt obligations in their credit quality and still have the highest credit rating necessary for the gold and forex reserves investment," the Finance Ministry said in a statement.

The Russian central bank, which holds $574 billion in gold and forex reserves, said in May it had about $100 billion invested in the securities of U.S. agencies at the end of 2007, with the majority in short-term paper.

Russia has bought the U.S. agency debt seeking to boost returns on the investment of its reserves, the world's third largest. The reserves also de-facto include Russia's two oil funds, where the country stashes its energy export revenues.

The debt issued by Fannie Mae and Freddie Mac soared on Friday after a New York Times report said the U.S. government was considering a takeover of the housing finance giants which face funding problems.

U.S. Treasury Secretary Henry Paulson later indicated a bailout was unlikely. Fannie Mae and Freddie Mac said that their finances were sufficiently sound to withstand the housing crisis.

STABLE

Paulson, who visited Russia last month, said the primary focus of the U.S. government was supporting Fannie and Freddie "in their current form as they carry out their important mission".

Fannie shares closed at $10.25 on Friday, down some 22 percent. Freddie closed at $7.75, down 3.1 percent. Both agencies have lost close to 90 percent of their value since August. The companies' bonds, however, posted gains.

"Unlike the share price for Fannie Mae and Freddie Mac, their debt obligations remain stable which is explained by the fact that the United States government publicly expressed readiness to support these companies," the Russian finance ministry statement said.

The statement said the National Banking Council, a body, which supervises some of the central bank's activities and which is headed by Finance Minister Alexei Kudrin, reviewed the reserves management at a meeting last week.

The issue became public in May when First Deputy Chairman of the central bank Alexei Ulyukayev said Russia suffered had some losses on its investment in Fannie and Freddie, declining to elaborate.

He later said his remarks were misreported but they nonetheless prompted calls for a thorough audit of the central bank's management of Russia's oil wealth.

The losses are difficult to estimate because the central bank does not disclose details of its asset management but Goldman Sachs analysts calculated the regulator lost $3.5 billion between January and May this year.

(Reporting by Gleb Bryanski, editing by Mike Peacock)

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