Maybe it’s just because there are lots of little French bon mots floating around at the moment, but does anyone feel a strange sense of déjà vu?
Not for SocGen though, but the monolines.
The FT broke news of a monoline bailout plan from the New York Insurance superintendent, Eric Dinallo, last week. A plan in which federal officials are trying to corral banks into supporting ailing SIVs bond insurers.
M-LEC, anyone?
Tuesday’s FT has an update on the progression of the bailout:
Efforts to shore up US bond insurers gathered pace yesterday as New York state regulators appointed investment bankers to advise on a rescue plan that could provide back-up credit lines for the troubled guarantors.
The efforts are being spearheaded by Eric Dinallo, the New York state insurance superintendent, who is being privately supported by the New York Federal Reserve Bank and other regulators, people familiar with the regulators said.
Perella Weinberg, an advisory firm based in New York, has been hired as a financial adviser by Mr Dinallo’s department, according to people briefed on the plans. The company is led by Joseph Perella, a former Morgan Stanley mergers and acquisitions executive, and Peter Weinberg, who previously ran Goldman Sachs’s European business. The executives were not immediately available for comment.
Mr Dinallo, who had said he is in contact with federal regulators, met about a dozen banks last week, asking them to provide $5bn to $15bn of funds for the bond insurance sector.
The question remains, have the banks actually stumped anything up? Or more to the point, will they? Reuters are pessimistic:
Wall Street banks and the New York State Insurance Department are more likely to look for individual fixes for ailing bond insurers than an industry-wide bailout, a person briefed on the matter said on Monday.
Not a surprise when the wilder estimates of cash-sums involved in a bond-insurer bailout are beginning to gain traction. Egan-Jones analyst Sean Egan mooted $200bn. Certainly headline grabbing.
But Barclays analysts too have slapped a massive capital requirement on the bond insurers:
Jan. 25 (Bloomberg) – Banks may need to raise as much as $143 billion to meet regulators’ requirements should rating firms downgrade bond insurers, Barclays Capital analysts said.
Banks will need at least $22 billion if bonds covered by insurers led by MBIA Inc. and Ambac Financial Group Inc. are cut one level from AAA, and six times more for downgrades by four steps to A, Paul Fenner-Leitao wrote in a report published today. Banks own $820 billion of structured securities guaranteed by bond insurers, the report said.
So monolines could well turn into a black hole. If banks are going to bail them out, they’ll want cast iron assurances from the rating agencies that downgrades won’t follow in the future – a guarantee they’re unlikely to get. Without it, what would an industry-wide bailout be but a blank cheque?
Add to that scepticism from some analysts – like Geraud Charpin at UBS – about the actual significance a monoline downgrade would have on banks’ balance sheets, and the Dinallo plan looks even less saleable to Wall Street.