Bank of China cuts its US-losses

via Wikipedia Remarkable news from the Financial Times again, as it reports that the Bank of China has cut its participation in the embattled Fannie and Freddie duo.

The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities.
Foreign investors have been a mainstay of the market for such debt, but uncertainty over the mortgage financiers’ capital positions and the timing and structure of a potential government rescue has made some investors reassess their exposures. Asian investors in particular have become net sellers of agency debt, said analysts.

The often quoted story is that if you have a small debts with a bank, you have a problem. But when you have a huge debts with a bank, the bank has a problem. With over one trillion US-dollar worth of mostly US-dollar denominated papers, you would expect that China has a huge problem. When it starts cutting its losses, it can mean only one thing: they expect it to get worse and would rather take their losses now, than wait until the last bit has melted away. Chinese banks know as no other what it means to have bad loans.
Fannie and Freddie have recuperated a part of the past losses, but obvious the fourth largest Chinese banks expects more trouble.

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