The Financial Times reported on Wednesday that Citigroup Inc., Merrill Lynch & Co. and UBS could face additional write-downs of up to $10 billion after the two largest bond insurers Ambac Financial Group Inc. and MBIA Inc. last week lost their triple-A credit ratings from Standard & Poor's. The banks rely on the monolines to insure holdings of risky structured finance products, such as mortgage-backed securities, and the report said that the trio are the banks most exposed to Ambac and MBIA, with UBS' exposure at $6.3 billion, Citi's at $4.8 billion and Merrill's at $3 billion.
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While none of the banks commented in the FT's report, one source told The Deal that all banks are likely contemplating their risk connected to all of the monolines.
The FT's speculation could very well be an overreaction to the ratings agency's move, which surprised some because it followed recent Ambac and MBIA capital raises. The monolines, while on shaky ground, are still rated at investment grade as S&P's drop still leaves both with a double-A rating. Their triple-A rating from Moody's Investors Service was placed on review for possible downgrade just before the S&P move.
Citi shares fell 2.81% in afternoon trading to $19.69, Merrill slipped 4.16% to $36.37, and UBS declined 2.69% to $22.82. - Michael Rudnick
See the story from the Financial Times
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