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Russia's Central Bank suffers losses in U.S. mortgage crisis

February 29, 2008 | RIA Novosti

Russia's Central Bank admitted Thursday having U.S. subprime mortgage bonds in its investment portfolio and said it had suffered losses following last November's credit crunch.

"As a result of the crisis on the U.S. subprime mortgage market, we have suffered losses," said Alexei Ulyukayev, first deputy chairman of the Central Bank.

"We have our own investment portfolio, which includes securities from Fannie Mae and Freddie Mac," he said.

Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are private enterprises sponsored by the United States Government.

As government-sponsored enterprises (GSEs), they are authorized to make loans and loan guarantees. However, their securities carry no government repayment guarantees, as it is explicitly stated in the law that authorizes GSEs.

As a result of the current U.S. mortgage crisis, Fannie Mae posted on Wednesday a record $3.56 billion Q4 loss, while Freddie Mac is expected to report at least a $1.5-bln quarterly loss on Thursday.

Ulyukayev did not specify the share of GSE mortgage bonds in the bank's portfolio.

Russia's Finance Ministry said on January 30 it had divided the Stabilization Fund, set up to accrue surplus revenue from high world oil prices, into the reserve fund and the sovereign wealth fund.

The Stabilization Fund held 3.852 trillion rubles ($157 billion) as of January 30.

Following the reform, the reserve fund, designed to cushion the federal budget in the event of an oil price plunge, totaled 3.069 trillion rubles ($125 billion) just after its formation, while the sovereign wealth fund, expected to help Russia carry through pension reforms, held 783 billion rubles ($32 billion).

The ministry said at the time that 80% of resources in the newly created funds will be invested in government bonds of countries approved by the Russian government, 15% in the bonds of foreign government agencies and central banks, and 5% in international financial institutions.


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