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Banks in talks about bailout of bond insurer ACA
Wed Dec 19, 2007 10:33am EST
NEW YORK, Dec 19 (Reuters) - Merrill Lynch (MER), Bear Stearns (BSC) and other large banks are in talks about bailing out bond insurer ACA Capital Holdings, the New York Times reported on Wednesday, citing two people briefed on the situation.
The insurer has guaranteed $26 billion in mortgage securities, and its troubles could require the banks to take on billions of dollars in losses they had insured through ACA, the Times reported.
A spokeswoman for Merrill Lynch reached by Reuters declined comment. ACA and Bear Stearns did not immediately return phone calls seeking comment.
A Bear Stearns spokesman told the Times it was a very small creditor and counterparty to ACA. "As such, our exposure is limited," he said.
ACA Capital Holdings lost $1 billion in the most recent quarter and its financial guarantor subsidiary is in danger of losing its key "A" rating from Standard & Poor's. If so, banks that bought credit protection from ACA Financial Guaranty Corp. would have to take back losses from the insurer, the newspaper said.
A large number of counterparties who have derivative contracts with bond insurers would have to take losses on the contracts if the insurers lose their top ratings. One analyst said that could lead to some form of a bailout.
"It does seem to us that the markets have a vested interest in preventing the industry from imploding," wrote CreditSights analyst Rob Haines in a recent report.
Canadian Imperial Bank of Commerce (CM.TO: Quote, Profile, Research) said on Dec. 6 an unidentified A-rated bond guarantor which is at risk of being downgraded had insured $3.5 billion of its subprime holdings. Analysts said Canada's fifth-largest bank would have to take a write-down of up to $2 billion if the guarantor, which they said was ACA, was downgraded.
ACA executives said in a conference call last month that losses on insured collateralized debt obligations would be insignificant.
ACA Capital was delisted by the New York Stock Exchange last week because of a drop in its market capitalization and shareholder equity.
Shares in Merrill Lynch and Bear Stearns were both up slightly in early trading on Wednesday. Shares in ACA ACAH.PK, which trade over the counter, rose more than 200 percent to 99 cents.
(Reporting by Dena Aubin; additional reporting by Karen Brettell; Editing by Tom Hals)
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN1959777920071219
Wed Dec 19, 2007 10:33am EST
NEW YORK, Dec 19 (Reuters) - Merrill Lynch (MER), Bear Stearns (BSC) and other large banks are in talks about bailing out bond insurer ACA Capital Holdings, the New York Times reported on Wednesday, citing two people briefed on the situation.
The insurer has guaranteed $26 billion in mortgage securities, and its troubles could require the banks to take on billions of dollars in losses they had insured through ACA, the Times reported.
A spokeswoman for Merrill Lynch reached by Reuters declined comment. ACA and Bear Stearns did not immediately return phone calls seeking comment.
A Bear Stearns spokesman told the Times it was a very small creditor and counterparty to ACA. "As such, our exposure is limited," he said.
ACA Capital Holdings lost $1 billion in the most recent quarter and its financial guarantor subsidiary is in danger of losing its key "A" rating from Standard & Poor's. If so, banks that bought credit protection from ACA Financial Guaranty Corp. would have to take back losses from the insurer, the newspaper said.
A large number of counterparties who have derivative contracts with bond insurers would have to take losses on the contracts if the insurers lose their top ratings. One analyst said that could lead to some form of a bailout.
"It does seem to us that the markets have a vested interest in preventing the industry from imploding," wrote CreditSights analyst Rob Haines in a recent report.
Canadian Imperial Bank of Commerce (CM.TO: Quote, Profile, Research) said on Dec. 6 an unidentified A-rated bond guarantor which is at risk of being downgraded had insured $3.5 billion of its subprime holdings. Analysts said Canada's fifth-largest bank would have to take a write-down of up to $2 billion if the guarantor, which they said was ACA, was downgraded.
ACA executives said in a conference call last month that losses on insured collateralized debt obligations would be insignificant.
ACA Capital was delisted by the New York Stock Exchange last week because of a drop in its market capitalization and shareholder equity.
Shares in Merrill Lynch and Bear Stearns were both up slightly in early trading on Wednesday. Shares in ACA ACAH.PK, which trade over the counter, rose more than 200 percent to 99 cents.
(Reporting by Dena Aubin; additional reporting by Karen Brettell; Editing by Tom Hals)
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN1959777920071219
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