NEW YORK (Reuters) - 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.
By Neil Shah and Dan Wilchins
NEW YORK (Reuters) - 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.
Bond insurers, who guarantee principal and interest payments on roughly $2.5 trillion of securities, have suffered major writedowns of bonds and derivatives linked to U.S. subprime mortgages.
Some investors could face huge losses on insured securities if the insurers lose their top credit ratings, which are critical for their business, analysts warned.
!ADVERTISEMENT!Last week, New York State Insurance Superintendent Eric Dinallo met with major Wall Street banks, which have billions of dollars in exposure to the so-called "monoline" insurers, to encourage them to put up cash to support the insurers.
The New York State Insurance Department has hired Perella Weinberg Partners to advise on bond insurers, a spokesman for the department said on Monday.
Perella Weinberg Partners is a small merger advisory firm founded in 1996 by Joseph Perella, a top dealmaker of the 1980s and 1990s at Credit Suisse First Boston and Morgan Stanley.
MORE DOWNGRADES?
Meanwhile, more U.S. bond insurers may lose their crucial top "AAA" credit rating as their struggle to raise needed capital may be a sign that the guarantors' woes are deepening, analysts said Monday.
Ratings agency Fitch is likely to downgrade bond insurer FGIC Corp soon, said analyst Rob Haines of research firm CreditSights.
Six weeks ago, on Dec 17, Fitch said on December 17 that FGIC's main bond insurance unit had too little capital for its top ratings. Without a plan to secure more than $1 billion of capital in four to six weeks, Fitch said in mid-December, FGIC would likely be downgraded.
A spokesman for Fitch said the rating agency does not comment on pending rating actions.
Sean Egan, managing director of independent credit-rating firm Egan-Jones Ratings Co., said during a conference call on Monday he expects even bigger firms like MBIA Inc <MBI.N> and Ambac Financial Group <ABK.N> to eventually see their ratings slashed.
"Watch for multi-step downgrades," Egan said. "Once it breaks, it's likely to break big."
Bond insurers like MBIA and Ambac have seen their stocks plunge on concerns they lack the cash to fulfill guarantees on some $930 billion of structured finance assets.
Major rating firms Moody's Investors Service, Standard & Poor's and Fitch have all put pressure on the insurers to raise more cash or risk losing their top credit rating.
Ambac said on January 18 it was no longer seeking to issue stock or convertibles because of difficult market conditions. MBIA successfully sold $1 billion of surplus notes earlier this month, but those bonds have already fallen dramatically in price since then.
FGIC, which as of the end of September had insured $314.8 billion of outstanding bonds, said on December 17 it has developed and is actively pursuing a plan to boost its capital. A spokesman for FGIC was not immediately available.
"The major ratings firms will cut ratings of the monoline firms as problems" become more obvious, Egan said.
