Asian banks rally on Fannie, Freddie bailout : US Business

By Lincoln Feast

SINGAPORE (Reuters) - Shares in Asian banks soared on Monday after the U.S. government took over Fannie Mae and Freddie Mac , reassuring investors worried about exposure to the mortgage giants' bonds and the value of other risky debt assets.

The takeover plan makes it more explicit that debt issued by Fannie and Freddie will be backed by the U.S. government and curbed worries about possible losses among financial institutions and investors that hold such paper, analysts said.

While the bailout plan was set to leave common shareholders in Fannie and Freddie last in line for any claims, that would have little negative impact on Asian banks.

"There is hardly any equity exposure of Asian bank ex-Japan in Freddie and Fannie," said Todd Dunivant, head of regional banks research with HSBC in Hong Kong.

"But investors were concerned about the mark-to-market losses in debt and MBS (mortgage-backed securities)."

MSCI's index of financial stocks in the Asia-Pacific region outside of Japan jumped 5.1 percent, its biggest one day move since March, while Japan's largest banks rose more than 10 percent.

Industry leader Mitsubishi UFJ Financial Group <8306.T>rose 12 percent while No. 2 lender, Mizuho Financial Group <8411.T>, and third-ranked Sumitomo Mitsui Financial Group <8316.T> both climbed 11 percent.

RISK PROFILE IMPROVES

The U.S. government's action, prompted by worries over the mortgage firms' shrinking capital, was the latest in a series of emergency steps taken by U.S. officials to prop up the wobbly housing sector and quell what is now a year-long crisis in credit markets that has helped push many economies toward recession.

In Hong Kong, Bank of China <3988.HK>, which has been tipped to have the greatest exposure to Freddie and Fannie debt among the Chinese lenders, rose 4.6 percent. China's third largest lender cut its debt and MBS holdings in the beleaguered U.S. home financers to under $13 billion by end-August from $17.3 billion at the half year mark.

Shares in Europe's largest bank HSBC Holdings <0005.HK>rose 4.6 percent.

Shares in Kookmin Bank <060000.KS>, South Korea' top commercial lender, jumped 8 percent. Woori Finance Holdings <053000.KS> surged 13.7 percent and Shinhan Financial Group rose 7.9 percent.

"Banks with higher portion of riskier assets are making the most gains. Woori Finance Holdings, which is said to hold more Fannie and Freddie-linked bonds than other banks, is jumping." said Park Jung-hyun, an analyst at Hanwha Securities.

Taiwan's largest financial stock, Cathay Financial <2882.TW>, jumped by its 7 percent daily limit, as did Shin Kong Financial <2888.HTW. The two companies said in July they had combined exposure of more than $10 billion to Fannie and Freddie.

"The move of the U.S. government was certainly helpful in reducing risks for us and other investors of Fannie Mae and Freddie Mac, though it is too early to say the crisis will soon be over," said Shin Kong President Victor Hsu.

"To diversify our portfolio, we would consider investing in some European government bonds."

BLEEDING STEMMED

In Australia, Reserve Bank of Australia Governor Glenn Stevens said the U.S. action was necessary to reassure shaky markets.

"On the whole it's a step they had to take. It's good that they have done it," Stevens said in testimony to parliament.

Australia and New Zealand Banking Group led gains, jumping 9.7 percent, while Commonwealth Bank and National Australian Banking both rose about 7 percent.

But Masanobu Takahashi, chief strategist at Ichiyoshi Securities in Tokyo, cautioned it was too early to predict a full recovery for banking shares, which are still down 20 percent in Japan and 30 percent elsewhere the region so far this year.

"It's just that bleeding from U.S. front has been stemmed, and it does not mean the overall economy will turn upward," he said. "We cannot expect that unless the governments take up measures that have impact on the economy."

(Reporting by Parvathy Ullatil in HONG KONG, Taiga Uranaka, Aiko Hiayshi and Masayuki Kitano in TOKYO, Mette Fraende in SYDNEY, Park Jung-youn in SEOUL, Faith Hung in TAIPEI; Editing by Jean Yoon)

(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.