Banks May See $10 Billion in Writedowns Because of Bond Insurer Credit Rating Downgrade
- Jun 11, 2008
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.