Dexia Group of Paris, a $230 billion-asset banking and municipal credit company, announced Tuesday that it has agreed to buy Financial Security Assurance Holdings Ltd., the No. 4 U.S. bond insurance company, for $2.6 billion.

While far smaller than the pairing of Charles Schwab & Co. and U.S. Trust Corp. or ING Group's bid for Aetna's financial services business, the Dexia-FSA deal is noteworthy, analysts said, for being the first of its kind between a bank and an insurance company since Congress broke down barriers separating the industries in November.

New York-based Financial Security Assurance, or FSA, last year ranked fourth in bond insurance with a 22.9% market share. Ahead of it were Ambac Assurance Corp., at 25.5%; MBIA Insurance Corp., at 24.8%; and Financial Guaranty Insurance Co., a unit of General Electric, at 24.4%.

Sources named Amsterdam-based ING Group and the Dutch-Belgian group Fortis NV as among the big European insurance companies and specialized European banks that might consider a bid for Ambac, MBIA, or Financial Guaranty.

"Between you and me, I would be shocked if by yearend all of the other three still remained independent," said a source close to the deal who asked not to be named.

FSA is mainly owned by institutional investors. White Mountains Insurance Group is the single biggest shareholder, with 13%, followed by Fidelity Management & Research Co., with 4.9%.

Analysts also noted that the relatively low prices of U.S. insurance companies - especially bond insurance companies - are making them a ready target for European banks, which have relatively rich market valuations.

"In the U.S., Dexia's financial backing will further enhance FSA's ability to compete successfully in the municipal and asset-backed insurance sectors," Dexia chief executive officer Pierre Richard said in a statement Tuesday.

In Europe, he added, "FSA will be able to take advantage of Dexia's broad client network to leverage its core expertise in the rapidly growing municipal infrastructure finance and securitization markets."

"This alone sends out a clear signal that valuations have been low and broadens the number of possible acquirers for other companies," said David Graifman, an analyst with Keefe, Bruyette & Woods Inc.

Analysts said it is only a matter of time before another big European financial institution acquires one of the other major U.S. bond insurance firms.

"What this transaction does is make obvious the potential of the international market for U.S. bond insurers," said Sabra R. Brinkman, an analyst with Advest Inc. in Hartford, Conn. "Given the enormous name recognition of U.S. companies, it makes sense for a company with global ambitions to look at the United States."

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