If rating firms downgraded bond insurers, banks would need to raise as much as $143 billion to meet regulators' requirements, according to Paul Fenner-Leitao, an analyst at Barclays PLC's investment bank.
Banks would need at least $22 billion if triple-A bonds covered by insurers like MBIA Inc. and Ambac Financial Group Inc. were cut one level, and if the bonds were downgraded by four steps to a single-A rating, banks would need six times more, Mr. Fenner-Leitao wrote in a report published on Friday. Banks own $820 billion of structured securities guaranteed by bond insurers, the report said.
"This is a huge amount, but the assumptions we use are also very aggressive," Mr. Fenner-Leitao said in a telephone interview from London. The estimate shows how bank capital could be diminished in the event of significant downgrades, he said.
Fitch Inc. cut Ambac Assurance Corp. of New York by two levels this month, to AA, and Moody's Investors Service Inc. and Standard & Poor's Corp. are reviewing their ratings for Ambac and MBIA for downgrades, casting doubt on the credit quality of $2.4 trillion of bonds the industry guarantees.
Citigroup Inc., Merrill Lynch & Co. Inc., Bank of America Corp., and other financial companies raised $72 billion from investors after reporting more than $133 billion of writedowns and credit losses triggered by the collapse of the subprime mortgage market.
Eric Dinallo, New York's superintendent of insurance, met with executives of banking and securities firms last week to ask them to extend bond insurers capital and stave off downgrades.
His office said Thursday that its rescue plan would "take some time."
Ambac shares rose Friday on speculation that the billionaire Wilbur Ross would buy the company. A deal may come within the next two weeks, the Evening Standard in London reported on its Web site.
Mr. Fenner-Leitao wrote in his report that Fitch is likely to downgrade other bond insurers in the "very near term," with Financial Guaranty Insurance Co. at greatest risk.
The capital that banks would need to raise includes stock and subordinated debt, the report said.
