Citigroup, Merrill Lynch and UBS, the banks most exposed to Ambac and MBIA, could face further writedowns of up to $10bn after the bond insurers last week lost their fight to retain their triple A credit ratings.The banks have used the bond insurers to hedge holdings of complex bonds such as collateralised debt obligations and other mortgage-backed securities.The prospects of further writedowns related to bond insurers, also known as monolines, could deepen concerns over the financial health of US and European banks. Ambac and MBIA, which guarantee more than $1,000bn of bonds, raised cash earlier this year to prop up their capital bases, damaged by exposure to mortgage-backed bonds. Al-though concerns have eased that bond insurer downgrades could damage the entire financial system, there remains the potential for individual banks and investors to suffer further pain from Ambac and MBIA's problems. Meredith Whitney, analyst at Oppenheimer, said in a report this week that UBS had the largest exposure to monolines of $6.3bn, Citigroup came second with $4.8bn and Merrill Lynch followed with $3bn. The value of CDOs and mortgage-backed bonds has plunged amid soaring foreclosure rates in the US. This week, CDOs in default crossed the $200bn mark, according to specialist publication Total Securitization. Many of these bonds had triple A ratings when they were issued and large amounts were retained by banks.S&P cut Ambac and MBIA to double A; Moody's expects to downgrade Ambac to double A and could cut MBIA to single A
Citigroup, Merrill Lynch and UBS, the banks most exposed to Ambac and MBIA, could face further writedowns of up to $10bn after the bond insurers last week lost their fight to retain their triple A credit ratings.
The banks have used the bond insurers to hedge holdings of complex bonds such as collateralised debt obligations and other mortgage-backed securities.
The prospects of further writedowns related to bond insurers, also known as monolines, could deepen concerns over the financial health of US and European banks.
Ambac and MBIA, which guarantee more than $1,000bn of bonds, raised cash earlier this year to prop up their capital bases, damaged by exposure to mortgage-backed bonds. Al-though concerns have eased that bond insurer downgrades could damage the entire financial system, there remains the potential for individual banks and investors to suffer further pain from Ambac and MBIA's problems.
Meredith Whitney, analyst at Oppenheimer, said in a report this week that UBS had the largest exposure to monolines of $6.3bn, Citigroup came second with $4.8bn and Merrill Lynch followed with $3bn.
The value of CDOs and mortgage-backed bonds has plunged amid soaring foreclosure rates in the US. This week, CDOs in default crossed the $200bn mark, according to specialist publication Total Securitization. Many of these bonds had triple A ratings when they were issued and large amounts were retained by banks.
S&P cut Ambac and MBIA to double A; Moody's expects to downgrade Ambac to double A and could cut MBIA to single A
Another domino falling... "Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
So in an sense, the desperate efforts led by the NY regulators to force the ratings agencies to maintain the AAA rating then was successful. It was a political decision, and seen as such, but it gave time to everybody to move away from that market in an orderly fashion.
(The issus was not that the papers were bad per se, just that those only allowed to hold AAA instruments would have been forced to sell massive volumes, which would have caused a price crash. without the obligation to sell in the short term, they could sell to players able to hold the underlying paper even if no longer rated AAA, so the loss existed, but was much smaller). In the long run, we're all dead. John Maynard Keynes
