Wednesday, January 30, 2008

When The Downgrades Come

For some time now the big question has been when will the ratings agencies pull out the jenga pieces marked "MBIA" and "ABK." Some noise now that it will happen soon, despite a request for a postponement from New York regulators.

What happens then?

Jan. 30 (Bloomberg) -- Citigroup Inc., Merrill Lynch & Co., UBS AG and other banks may be forced to post up to $70 billion in writedowns should bond insurers lose their top credit ratings, according to Oppenheimer & Co. analyst Meredith Whitney.

Citigroup, Merrill Lynch and UBS AG, which have already suffered the biggest losses from the collapse of the subprime mortgage market, according to Bloomberg data, hold 45 percent of the ``entire market risk,'' Whitney wrote in a note to clients dated yesterday. MBIA Inc. and Ambac Financial Group Inc., the biggest so-called monoline insurers, are on review for possible downgrades by Moody's Investors Service and Standard & Poor's.

``The fate of the monoline insurers is of paramount importance to financial stocks,'' said New York-based Whitney. ``When it becomes clear, as we expect it will, that more charges are on the horizon, we believe the market will take another turn for the worse.''