‘The Russian Federation Ministry of Finances was quick in reacting to the U.S. mortgage lending agencies’ problems and came up with an official statement fast, which is a good thing. The fact that only a portion of the Central Bank’s foreign and gold holdings and not the Reserve Fund or the National Welfare Fund’s reserves are invested in their bonds is another good thing. And, besides, the forex/gold holdings were invested in Fannie Mae and Freddie Mac’s debt securities, not in their shares,’ Management Company’s Investment Director Alexander Metzger said to UrBC.

Nevertheless, over $100bn, or 20% of Russian treasury funds were invested in Fannie Mae and Freddie Mac, the U.S. mortgage lending agencies whose share prices keep dropping. Freddie Mаc’s share price dropped by 22% and came to $8 per share on July 10, 2008, while Fannie Mae’s shares went 13.8% cheaper and are now sold for $13.2 per share. All in all, their share prices have plummeted by 75% and 64% since the beginning of the year, respectively. This is why the Ministry of Finances decided to explain its investment choices in an official statement:

‘Unlike their stock prices, Fannie Mae and Freddie Mac’s debt securities quotations have remained quite stable. This has to do with the fact that the U.S. Government has openly expressed its willingness to support these agencies financially. Fannie and Freddie’s liabilities can therefore still boast the highest credit rating that meets the requirements of forex/gold holdings investors,’ the statement says.

The Ministry of Finances claims the situation is under their total control.

‘The management of the forex/gold holdings is closely monitored by the National Banking Council, consisting of Members of Government, the Administration of the President, the Soviet of the Federation, and the State Duma. The National Banking Council, assisted by PriceWaterhouseCoopers Audit, assessed and approved of the Bank of Russia’s annual report for 2007 and considered the data on the bank’s performance in the first quarter of 2008 (including the management of foreign exchange and gold holdings) on July 10, 2008,’ the Ministry reports.

‘The agencies’ debt securities are doing well, and the U.S. Government is bound to keep it this way, as these aren’t simply large financial organizations: they are the symbols of the U.S. entire financial system,’ Metzger noted.

‘Still, these events can’t help affecting the market badly. Firstly, the dollar might become much weaker and thus devaluate all the dollar assets. Secondly, we don’t know if some Russian banks and financial organizations actually handled Fannie Mae and Freddie Mac’s debt or equity securities. This means the uncertainty and a bit of hysteria on the global and Russian financial markets are bound to go up,’ he observed.