Standard & Poor's (S&P) has stripped bond insurer Financial Guaranty Insurance Co., the bond insurance arm of FGIC Corp., of its AAA rating, as well as placed MBIA Inc. on review for downgrade – indicating it may take similar action unless MBIA is able to raise more capital soon.
According to a Wall Street Journal article, S&P said Financial Guaranty, a unit of FGIC, ‘may fail to raise the capital needed to cushion possible losses on complex securities that have plunged in value.’ A downgrade at MBIA could lead to further losses of its debt.
Risky residential mortgage securities held in the insurance portfolios of bond insurers are the source of the losses that threaten credit ratings, notes a Reuters article. The New York State Insurance Department is said to be working with banks to aid bond insurers, but help may not arrive in time to save the ratings.
MBIA is also on watch for a downgrade at Moody's, the Wall Street Journal adds.