NEW YORK - Eight large banks have joined forces to seek a rescue plan for MBIA Inc, Ambac Financial Group Inc and other troubled bond insurers battered by the global credit crunch.
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 depend on to function normally.
The eight banks are Barclays Plc, BNP Paribas, Citigroup Inc, Allianz's Dresdner Bank, Royal Bank of Scotland Group Plc, Societe Generale, UBS AG and Wachovia Corp.
The banks retained Greenhill & Co, a boutique investment bank, as an adviser, CNBC said, citing the unnamed source.
The banking industry itself has suffered more than $100 billion of write-downs in the last year related to mortgages and other complex debt. 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. That decision backfired last year as credit markets tightened, homeowner defaults soared, and the value of those securities sank.
Unless the market or the insurers stabilise, 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. Standard & Poor's estimated total banking industry losses tied to mortgage problems will exceed $265 billion.
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 triple-A ratings from a handful of bond insurers.
In recent 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 debt protection costs fell to 14.5 percent upfront plus 500 basis points, from 18.7 percent upfront plus 500 basis points.
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 depend on to function normally.
The eight banks are Barclays Plc, BNP Paribas, Citigroup Inc, Allianz's Dresdner Bank, Royal Bank of Scotland Group Plc, Societe Generale, UBS AG and Wachovia Corp.
The banks retained Greenhill & Co, a boutique investment bank, as an adviser, CNBC said, citing the unnamed source.
The banking industry itself has suffered more than $100 billion of write-downs in the last year related to mortgages and other complex debt. 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. That decision backfired last year as credit markets tightened, homeowner defaults soared, and the value of those securities sank.
Unless the market or the insurers stabilise, 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. Standard & Poor's estimated total banking industry losses tied to mortgage problems will exceed $265 billion.
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 triple-A ratings from a handful of bond insurers.
In recent 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 debt protection costs fell to 14.5 percent upfront plus 500 basis points, from 18.7 percent upfront plus 500 basis points.
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