Bank of China Ltd. reported the slowest profit growth among China's biggest lenders in the second quarter because of subprime mortgage losses and said it holds $10.5 billion of securities backed by U.S. home loans.
Net income at China's third-largest bank rose 15%, to $3 billion, according to data released in a statement Thursday. The company said that it holds $3.64 billion of securities tied to subprime mortgages and disclosed $6.9 billion of additional home loan investments.
Overseas mortgage investments limited the bank's ability to profit from a domestic economy that grew at a 10.1% annual pace in the quarter, said chairman Xiao Gang.
Bank of China said it held $7.5 billion of debt issued by Fannie Mae and Freddie Mac as of Aug. 25 and $5.17 billion of mortgage-backed securities guaranteed by the two largest U.S. home loan providers. It held $1.83 billion of securities backed by so-called alternative-A mortgages and $5.08 billion of other "nonagency" home loan investments. About 99% of securities in the latter category are rated AAA, it said.
The company wrote down the value of subprime investments by $405 million in the quarter.
It has booked $522 million of losses to date on securities tied to Alt-A loans and another $599 million on other mortgage investments.
All told, investments in U.S. mortgage securities have caused $3 billion of losses at Bank of China since the credit crisis began a year ago, making it the biggest loser among the nation's lenders.