CFO SINK REPORTS SUBPRIME RISK TO STATE TREASURY IS MINIMAL
Sink ordered an analysis of subprime risk in Treasury funds earlier this month

Two weeks after calling for an in-depth analysis on how the collapse of the subprime mortgage market might affect Florida’s Treasury investments, Chief Financial Officer Alex Sink reported that the Treasury maintains a diversified bond portfolio with minimal subprime exposure.

CFO Sink called for the Treasury’s investment analysis after meeting with senior executives from Wall Street investment firms and witnessing rating agencies down-grading several mortgage-backed securities previously rated as high as AAA.

“As the manager of the state Treasury with $24 billion in investments, I want to ensure we are safeguarding the taxpayers’ money,” said CFO Sink, who oversees of the Department of Financial Services. “During the past two weeks, we’ve examined every subprime-related investment and concluded the risk to the state’s Treasury investments is minimal.”

Subprime holdings represent approximately 0.7 percent of the Treasury’s total $24 billion investment portfolio. The securities held are not expected to default, as most of the subprime holdings maintained by the state Treasury are seasoned holdings that have been performing for years. Additionally, these holdings are senior in priority and are believed to contain sufficient credit support to cover the state’s investment.

Investment managers who manage state funds are required to abide by strict financial guidelines, such as investing in funds with specific credit ratings and other risk criteria. In some cases, high-risk mortgage-backed securities have been repackaged, given a high investment grade rating, and sold to investors. Subsequently, Moody’s Investors Service and other rating firms have downgraded the ratings of several mortgage-backed securities, leading CFO Sink to call for higher scrutiny of the Treasury’s investments.

“It’s clear that we can no longer solely rely on an investment’s credit rating when making management decisions,” said CFO Sink. “In light of the current market conditions, we are tightening our risk tolerances to better safeguard the people’s money.”

State Treasury managers also reviewed a number of other investments that could potentially be affected by the subprime mortgage market collapse, including collateralized debt obligations (CDOs), Alt-A mortgages and structured investment vehicle (SIV) obligations. Total exposure in these investments is minimal, and they are senior class investments not expected to default.

CFO Sink had also asked the State Board of Administration to review its $187 billion in investments and to present the findings to the Florida Cabinet’s meeting on November 14, 2007. The State Board of Administration manages the state’s $138 billion pension fund and other investment pools, and reports to the Governor and Cabinet. SBA Director Coleman Stipanovich Wednesday indicated the state’s pension fund was properly diversified and not at risk.

CFO Sink has also encouraged other state entities – including the Florida Hurricane Catastrophe Fund, Florida Citizens Property Insurance Corporation, and the Florida Prepaid College Fund – to review their asset allocations, investment decisions and risk levels.