Raise your hand if you’re surprised! I caught wind of the official announcement on our link to Sam Friedman’s blog.
European reinsurers in total have billions of dollars invested in the troubled Fannie Mae and Freddie Mac mortgage finance companies, according to a study by Highline Data.
Highline–a unit of Summit Business Media, the parent of National Underwriter–reported that Munich Re Group, as of the first quarter, had combined Fannie Mae and Freddie Mac investments of some $4.9 billion, representing 27.5 percent of the carrier’s bond holdings.
Highline also noted that PartnerRe Group, with European headquarters in Dublin, has Fannie/Freddie investments of $911 million.
According to Highline, Zurich-based Swiss Re had combined Fannie Mae and Freddie Mac holdings of some $255 million, which represented 18.9 percent of the carrier’s total bond investments.
Swiss Re, after disclosing its involvement with the two lenders, saw its stock drop today by 2.3 percent in Zurich trading.
There was no “unofficial announcement” just an educated guess that some of those “cats” I’ve been writing about were “house cats” in a manner of speaking.
I certainly didn’t think about $9.6billion dollars of Swiss Re holdings in Fannie Mae and Freddie Mac – but you’ve got to hand it to them, those folks know disasters and that’s exactly what the mortgage business is at the moment.
Bloomberg tells a little more of the story.
Swiss Reinsurance Co., Switzerland’s largest reinsurer, fell in Zurich trading after saying it had $9.6 billion of corporate debt from Freddie Mac and Fannie Mae, the beleaguered U.S. mortgage-finance companies.
Swiss Re dropped 1.45 francs, or 2.3 percent, to 60.75 francs, bringing losses this year to 24 percent and giving the company a market value of 22.5 billion francs ($22.2 billion).
Swiss Re held $5.2 billion in Freddie Mac and $4.4 billion in Fannie Mae corporate debt at the start of July, it said in a memo to analysts. U.S. Treasury Secretary Henry Paulson on July 12 asked Congress for authority to buy unlimited equity stakes in and lend to Fannie Mae and Freddie Mac to shore up investor confidence.
“The holdings represent potentially risky exposures, but aren’t writedown positions yet,” said Lucio Di Geronimo, a Munich-based analyst with UniCredit. “I wouldn’t be panicking at the moment.”
Washington-based Fannie Mae, created in 1938 as part of President Franklin D. Roosevelt’s New Deal, has fallen 82 percent this year, and Freddie Mac, based in McLean, Virginia, dropped 85 percent. The government-sponsored companies tumbled yesterday in New York Stock Exchange composite trading as investors lost confidence in Paulson’s plan to shore up their finances.
`De Minimus’
Zurich Financial Services AG, Switzerland’s largest insurer, holds $9.4 billion in U.S. agency debt, some $8.3 billion of that in Fannie Mae and Freddie Mac debt, said Ingo Buse, a spokesman for the company.
Swiss Re’s holdings in shares of U.S. government-sponsored agencies is “de minimus,” the reinsurer said.The Zurich-based company is due to report second-quarter earnings on Aug. 5. Swiss Re also gave a breakdown of holdings by agency of the 12.2 billion francs in residential mortgage-backed securities it had as of March 31. The holdings were 47 percent from Freddie Mac, 44 percent from Fannie Mae and 9 percent from Ginnie Mae.
The Swiss company last month raised its estimate for second- quarter losses from structured credit-default swaps to 350 million francs, from an earlier prediction of 200 million francs. It wrote down more than 2 billion francs on credit-default swaps in the previous two quarters.
Richard Hewitt and Robin Buckley at Dresdner Kleinwort yesterday cut their recommendation on the stock to “hold” from “buy,” citing risks from the reinsurer’s “opaque” investments.
The bottom line to all of this we don’t know yet; but, for the moment it’s simply that we’ve got ourselves one hell of a mess. Let’s just hope we don’t have a hurricane.