Real Estate Lender Implosion

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Eight banks join to rescue MBIA, Ambac, others: CNBC

Fri Feb 1, 2008 10:54am EST

NEW YORK (Reuters) - Eight large banks have joined forces to seek a rescue plan for MBIA Inc (MBI), Ambac Financial Group Inc (ABK) and other troubled bond insurers battered by the global credit crunch, CNBC television said on Friday, citing an unnamed source.

Shares of MBIA rose $1.70, or 11 percent, to $17.20 in trading before the market opened. Ambac rose $1.78, or 15.2 percent, to $13.50. The cost of protecting MBIA and Ambac debt against default fell, indicating that investors see less risk.

The $2.5 trillion bond insurance industry is struggling with mounting losses and capital shortfalls, jeopardizing the "triple-A" credit ratings that insurers such as MBIA and Ambac have long held and depended on to function normally.

CNBC said the banks include Barclays Plc (BARC), BNP Paribas (BNPP), Citigroup Inc (C), Allianz's (ALVG.DE) Dresdner Bank, Royal Bank of Scotland Group Plc (RBS.L), Societe Generale (SOGN.PA), UBS AG (UBSN.VX) and Wachovia Corp (WB).

The banking industry itself has suffered more than $100 billion of write-downs in the last year related to mortgages and other complex debt.

Representatives of Citigroup and UBS declined to comment. Wachovia had no immediate comment. The other banks, Ambac and MBIA did not immediately return requests for comment.

Bond insurers got caught after venturing beyond writing coverage for bonds typically used to finance hospitals, roads, schools and sewer systems.

Instead, to increase profit, they chose to also underwrite structured products, including securities backed by risky subprime mortgages.

Their decisions backfired last year as credit markets tightened, homeowner defaults soared, and the value of those securities sank.

Unless the market or the insurers stabilize, investors may unload hundreds of billions of dollars of bonds, raising borrowing costs and ultimately burdening taxpayers. It could also result in hundreds of billions of dollars of additional write-downs at banks worldwide, analysts have said.

Regulators including New York Insurance Commissioner Eric Dinallo have been meeting with industry participants to discuss a rescue. Dinallo was not immediately available for comment.

Credit rating agencies have taken away their triple-A ratings from a handful of bond insurers.

On Thursday, MBIA reported a record $2.3 billion quarterly loss and said it would look for new capital, but expected to retain its triple-A rating.

Standard & Poor's nevertheless put that rating on review for downgrade, joining Moody's Investors Service.

In Friday morning trading, the cost to protect MBIA debt against default fell to 14 percent upfront plus 500 basis points (5 percentage points) a year, from 17.5 percent upfront plus 500 basis points, according to CMA DataVision.

Ambac's debt protection costs fell to 14.5 percent upfront plus 500 basis points, from 18.7 percent upfront plus 500 basis points.

(Reporting by Dena Aubin, Christian Plumb, Neil Shah, Jonathan Stempel and Dan Wilchins; Writing by Jonathan Stempel; Editing by Steve Orlofsky and Dave Zimmerman

http://www.reuters.com/article/ousiv/idUSWEN372920080201

Bond insurer charts (ACAH ABK MBI SCA) ... #msg-26226667