Financial institutions are likely to take only around $5bn to $7bn in losses from their exposure to bond insurers, far below recent estimates of as much as $70bn, Morgan Stanley said Monday, reports Reuters. Morgan Stanley also said a bailout of the bond insurance industry is not in the economic interest of banks, though analysts at CreditSights said late Sunday they now view a bailout as more likely. Monoline bond insurers are under review by credit ratings agencies and may lose the “AAA” ratings vital to their business. Some analysts have estimated that US financial institutions exposed to the bond insurers are facing as much as $50bn-$70bn in losses, but Greg Peters, Morgan Stanley’s lead credit analyst, said he views exposures as significantly lower. Morgan Stanley evaluated mortgage exposure in CDOs insured by leading bond insurers Ambac, FGIC, Security Capital Assurance and MBIA, and determined that exposures by US banks were more in the $20bn-$25bn range.

This entry was posted by Gwen Robinson on Tuesday, February 5th, 2008 at 5:37 and is filed under Capital markets. Tagged with Ambac, FGIC, MBIA, morgan stanley. Edit this entry.