'No Worries in Recouping U.S.
Mortgage Loan Investments'
Central Bank sees no trouble recovering investments in the two mortgage loan companies
The Bank of Korea sees no problem in recovering its principal investments in senior bonds issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, better known as Fannie Mae and Freddie Mac, the two largest U.S. mortgage loan providers.
There is no chance the U.S. government will buy back the bonds at a discount if it decides to bail out the mortgage finance companies, the central bank said in a statement on Aug. 21.
U.S. Treasury Secretary Henry Paulson received authority from Congress last month to pump an unlimited amount of emergency capital into the two cash-strapped mortgage loan giants after the debt yields rose and their share prices tumbled 90 percent from a year earlier.
The yields on Fannie and Freddie senior debt fell after their executives met with Treasury officials on Aug. 20 on expectations that recovery of the principal will be "more certain"if the bailout plan take shape, the central bank said.
Shares in Fannie and Freddie, government-chartered companies that together account for almost half of the $12 trillion U.S. mortgage market, reached their lowest levels in two decades on Aug. 21.
Their preferred shares lost about one-third of their value in one week. But the U.S. federal government decided to extend bailout funds to both mortgage loan banks to the tune of $200 billion to keep the two important banks from going down and reassure the investors.
Central banks pared purchases of new Fannie and Freddie debt by more than a quarter in the past two weeks.
According to a study by the central bank, domestic firms have preferred to keep their assets in financial rather than non-financial assets since 2001. The study said the firms'nonfinancial assets came to 56.2 percent of their total assets at the end of 2000, but fell to 47 percent at the end of 2007.
Financial assets expanded to 53 percent of total assets in 2007. The ratio of financial assets began to increase from 2006 by rising 3.6 percent over non-financial assets, which further rose 6 percent in 2007.
Financial assets accounted for 50 percent of total assets held by firms in the country in 2005 and then rose to 51.8 percent in the following year. Non-financial assets accounted for a 56.2 percent share in 2000, but fell to 50 percent in 2005 and to 48 percent the following year.
Current assets made up 27.3 percent of financial assets in 2000 and continued to rise since then, climbing to 30.5 percent the following year and to 32 percent in 2006 and 2007.
The share of liquid assets among the financial assets took up 13.1 percent in 2000 and rose to 17.7 percent in 2007, which is a slight decrease from the previous year at 18.4 percent and 19.1 percent in 2003.
The central bank's study also showed that Korean firms'foreign direct investments increased 33.6 percent in 2007 over the previous year and rose 60.2 percent in the area of M&As overseas.
It also showed that Korean firms increasingly concluded M&As overseas looking at it as a shortcut to expanding their international operations, rather than making investments in tangible assets overseas. During 2007, M&As by Korean firms amounted to 33.9 trillion won over 742 cases.
The study said direct overseas investments by Korean firms have been increasing rapidly since 2005. It amounted to $20.35 billion in 2007, up 85.7 percent from 2006, and four times the annual average foreign direct investments during 2000 and 2005.
The study also showed that 5,633 new companies were launched in 2007, four times the number set up in 1997 and 1.9 times the yearly average during 2000-2005.
The study also revealed that Korean firms showed a tendency to hold on to financial assets more than non-financial assets since 2000. nw
Gov. Lee Seong-tae of the Bank of Korea.