JEDDAH: Ilyas Al-Qaseer, a senior official of Calyon Credit Agricole Bank, has said that the US government was seeking funds from Middle Eastern and Asian investors to help cover $1 trillion mortgage losses of Fannie Mae and Freddie Mac, the state-backed American mortgage finance titans.

The two firms own or guarantee about $5.2 trillion in home loans, equivalent to about 40 percent of the overall value of American mortgages.

Speaking to Al-Eqtisadiah business daily, Al-Qaseer, who is the French bank’s executive director for treasury affairs, wondered how much profit the American government would provide to investors if they channel their money to save the country from its mortgage crisis.

He expected many financial, banking and investment organizations would purchase subprime mortgage assets in the US. However, he pointed out that banks in the region that are involved in the crisis could not sell all their mortgage assets, adding that they could not find buyers for about 20 percent of such assets. He voiced doubts whether Gulf banks affected by the credit crunch would be able to recover their money except in a limited way.

Last week, the US administration announced plans to rescue the two major credit companies as part of its efforts to resolve the mortgage crisis and win public confidence in the country’s financial system. The cost of saving the two companies is estimated at $200 billion and it would be made through pumping more funds to the two.

America’s mortgage sector, roughly worth about $1 trillion, a portion of which is made up of subprime loans that do not meet top quality criteria.

A number of financial organizations and rich people in the Gulf region have invested in sovereign funds of leading banks and financial organizations such as Citigroup and Merrill Lynch after the latter suffered heavy losses as a result of the writing-off of billions of dollars following the mortgage crisis. Some Gulf banks also have suffered losses due to the mortgage crisis in the US.

Al-Qaseer expected that more Western banks would announce their losses caused by the mortgage crisis within six months. He also predicted that the crisis would lead to an international economic slowdown and a liquidity crunch.

The Calyon bank official feared that Gulf banks would not be able to recover their losses caused by the mortgage crisis. Abu Dhabi Commercial Bank announced last week that it had started legal procedures in New York to recover losses of its investment funds in the US. Al-Qaseer predicted that the Gulf banks that were not hit by the US crisis would not be able to make big profits like before due to a lack of liquidity and fall in investments.

Many financial organizations have also stopped issuing new bonds and Islamic sukuk, he added.

Central banks in Gulf countries have also regulated issuance of loans to avoid any future credit crisis like the one suffered by the US. Al-Qaseer cautioned Gulf financial organizations for keeping 80 percent of their total investment in the real estate sector.

He warned investors would loss heavily if there was any fall in real estate prices. “Such a crisis will have greater negative impact on Islamic banks,” he added.

Dominic Strauss-Kahn, managing director of International Monetary Fund, said the tackling of the mortgage crisis required government interventions at global level. He also called for concerted cross-border intervention and regulation by national governments to stem the ongoing global banking crisis. The IMF warned that total write-downs (i.e. balance sheet losses) due to the collapse of subprime US mortgage lending may reach $945 billion.