Ambac, MBIA woes could spark more bank losses

These are the Bond Insurers I mentioned yesterday that are in trouble.
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NEW YORK (Reuters) - Further credit-rating troubles for bond insurers Ambac Financial Group (ABK.N: Quote, Profile, Research) and MBIA (MBI.N: Quote, Profile, Research) could spark a new wave of bank losses and batter the value of billions of dollars of insured mortgage investments.

But the world's two largest bond insurers, which together guarantee payments on over $1.2 trillion of debt, are likely to remain solvent amid further rating actions, since their obligations to cover subprime investors unfold over a long period, analysts say.

Fitch Ratings last Friday became the first agency to cut the crucial "AAA" credit ratings of a top-rated bond insurer, cutting Ambac Assurance Corp by two notches to "AA" in a move that makes it difficult for Ambac to drum up new business and has raised expectations of more downgrades to come.

That could mean more volatility for global financial markets, which swooned on Monday partly on fears about the fate of U.S. bond insurers.

"Further downgrades would likely kick off yet more write-downs" by banks and brokers, said Christian Stracke, an analyst at research firm CreditSights, in a report on Tuesday.

Global banks have already announced nearly $100 billion in potential losses, according to figures from brokerage Friedman Billings Ramsey.

But a severe downgrade of the bond insurers "could have truly systemic implications for the global banking system," Stracke said.

Ambac on Tuesday reported a quarterly loss of $3.3 billion after recording massive credit derivative write-downs, but its shares surged after the bond insurer said it hopes to find much-needed capital "reasonably soon."

Continued...http://www.reuters.com/article/reutersEdge/idUSN2263708920080123