Banks May See $10 Billion in Writedowns Because of Bond Insurer Credit Rating Downgrade

New York–The banks most exposed to bond insurers Ambac and MBIA–Citigroup, Merrill Lynch and UBS–could see further losses of up to $10 billion because the bond insurers lost their triple A credit ratings last week, the Financial Times said Wednesday.The banks used New York-based Ambac and Armonk, N.Y.-headquartered MBIA–which were downgraded by Standards and Poor’s last week and are expected to be downgraded by Moody’s Investors Service–to hedge holdings of complex bonds, including mortgage-backed securities. Ambac and MBIA guarantee more than $1,000 billion of bonds.Any additional bond insurer-related writedowns-also called monolines–could increase panic about the U.S. financial market and European banks, the Times said.UBS had the biggest exposure to bond insurer-related writedowns–$6.3 billion; Citigroup had $4.8 billion of exposure and Merrill Lynch had $3 billion, according to Meredith Whitney, an analyst at Oppenheimer.Ambac and MBIA’s mortgage-backed bond exposure caused problems for the companies this year. The value of mortgage-backed bonds has fallen this year as U.S. foreclosure rates have risen.