FGIC: mortgage losses exceed legal limits
|
|
|
By Walden SiewNEW YORK (Reuters) - Bond insurer FGIC Corp said on Wednesday that its exposure to mortgage losses exceeded legal risk limits and it may raise loss reserves due to litigation related to stricken German bank IKB.FGIC, the parent of bond insurer Financial Guaranty Insurance Co, earlier this month filed a lawsuit accusing German state-owned IKB of fraud in providing incomplete information on $1.9 billion of debt that FGIC agreed to insure.FGIC in a statement also said it has a substantially reduced capital and surplus position through December 31. As a result, insured exposures exceeded risk limits required by New York state insurance law, the New York-based company said."This is a bombshell," said Rob Haines, senior insurance analyst at CreditSights in New York. "They are actually in violation of New York insurance law. If they don't remediate this, the state has the ability to take control of the company."Haines estimated that FGIC would need to raise about $2 billion to stabilize the company.A spokesman for New York Insurance Superintendent Eric Dinallo said they were reviewing the new FGIC information and declined to comment.FGIC in notes to its consolidated financial statements said it plans to submit a plan to the New York superintendent to reduce its risk. FGIC also said it has voluntarily ceased writing new business to preserve capital."Management is assessing whether the loss reserve related to the commitment agreement needs to be adjusted in the future to reflect the impact of these developments," FGIC said in a statement. "Any such adjustment could be material."Bond insurers have been facing increasing pressure on their ratings as some companies expanded into insuring complex debt tied to deteriorating U.S. mortgages.The bond insurers were not alone in overreaching. Once a little-known lender, IKB took center stage last year as Germany's first subprime casualty when its investments in the market for the risky U.S. mortgages soured.The affair has become an embarrassment for Germany as a banking center. The government has stepped in to try to save IKB from collapse.The bank is due to hold its annual general meeting on Thursday in Duesseldorf.RATINGSAll three of the main rating companies recently cut FGIC's ratings, limiting its ability to insure bonds and generate new business.Standard & Poor's said on March 21 that it may downgrade FGIC and its insurance arm due to a decision by the bond insurer's principal owner, PMI Group , not to put more capital into FGIC.Other owners of FGIC include private equity giant Blackstone Group , which was part of a consortium that bought FGIC from a General Electric Corp unit in 2003.PMI shares fell 7.8 percent to $6.41 in afternoon trading on Wednesday. Blackstone shares were down 1.35 percent at $16.05.S&P had stripped FGIC's insurance arm of its top "AAA" rating in January and now rates the company "A," the sixth-highest rating. It rates FGIC Corp "BBB," the second-lowest investment grade.Unlisted FGIC posted a fourth-quarter loss of $1.89 billion from its exposure to collateralized debt obligations related to asset-backed securities.(Editing by Jonathan OatisHals)
(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
|
|
|
|
|
|
Related News
FDIC: 'Problem' banks at 16-year high in US
Washington - The number of US banks in danger of collapse has risen to the highest level in 16 years, a government regulator reported Tuesday in a sign that the country's worst financial crisis in decades is still lingering. The Federal Deposit Insur...
American shoppers lace up racing shoes for Black Friday
Los Angeles - Up to 134 million Americans are expected to splash out with their cash when the holiday shopping season kicks off on traditional Black Friday. The National Retail Federation Tuesday said it anticipated that the easing recession will sen...
US stocks edge lower on revised growth figures
New York - US stocks fell slightly on Tuesday as government figures showed that last quarter's economic rebound was smaller than initially thought. The Commerce Department in an updated estimate said the economy grew at an annual rate of 2.8 per cent...
US economic rebound smaller than thought; Fed optimistic - Summary
Washington - The US economy's rebound from a deep recession was smaller than initially thought, according to new government figures Tuesday, while the Federal Reserve said it expects the country's recovery to pick up...
EXTRA: US central bank issues rosier outlook on economy
Washington - The Federal Reserve Tuesday raised its growth forecasts for the US economy, but warned that unemployment in the United States will remain for some time at its highest levels in a generation. The US central bank projected the world's larg...
US levies first-ever fines on airlines who stranded passengers
Washington - Three US airlines were fined a total of 175,000 dollars on Tuesday for leaving passengers stranded nearly six hours on an aircraft, the first-ever such penalty imposed by the US government. Continental Airlines and ExpressJet Airlines we...
US economy grew 2.8 per cent in third quarter - Summary
Washington - The US economy grew at an annual rate of 2.8 per cent in the third quarter of this year, according to an updated government estimate Tuesday that confirmed the United States has likely emerged from its deepest recession in decades. But t...
|
|
|
|
|
|
|
|
