Standard & Poor’s, the credit rating agency that is considering downgrading the triple-A credit ratings of bond insurers, warned Tuesday that the move could be damaging for banks with direct exposure to the insurers. The forecast came as bond insurers including Ambac, FGIC, MBIA and SCA continued frantic efforts to raise capital to avoid downgrades. Banks with exposure to the insurers are in talks about providing capital. One group is discussing a deal related to Ambac, while another is believed to be considering raising funds for FGIC, partly owned by buy-out firm Blackstone. S&P said most potential losses for banks in the event of downgrades for the “monolines” would be through hedging arrangements that the bond insurers had provided on about $125bn worth of the least risky tranches of CDOs. Although it did not specify which banks were most exposed, S&P noted that Citibank, Merrill Lynch and CIBC had all reported hedges on the so-called super-senior tranches of high-grade CDOs and had recently taken reserves for counterparty risk. Separately, Bloomberg reports that Fitch placed MBIA’s AAA bond insurance ranking back under review and also put CIFG Financial Guaranty back under review.

This entry was posted by Gwen Robinson on Wednesday, February 6th, 2008 at 5:40 and is filed under Capital markets, M&A. Tagged with Ambac, CIFG, FGIC, fitch, MBIA, s&p. Edit this entry.