Banks may need another US$143 bln to deal with downgrades: study

PARIS, Jan 25, 2008 (AFP) – Major world banks might need to raise a further 143 billion dollars in capital to confront the impact of ratings downgrades to bond insurers, a study by Barclays Capital warned Friday. A downgrade to the bond insurer would therefore force banks, which have already revalued billions of dollars in assets because of the subprime crisis, to undertake further writedowns.

Barclays Capital, the asset management unit of the British bank Barclays, said that under one extreme scenario banks would need to write down assets worth 123 billion dollars (84 billion euros) to take account of such downgrades.

Bond insurers are currently under pressure from a worldwide credit squeeze linked to the deterioration of securities backed by the subprime, or high risk, mortgage market in the United States. The subprime sector has been shaken by a wave of foreclosures since last August.

Bond insurers rely heavily on solid, triple-A ratings in order to function effectively. A downgrade would lead to an automatic lowering in the rating of all the securities backed by the insurer.

Barclays Capital estimated that some 2.4 trillion dollars’ worth of securities are guaranteed by bond insurers. Of tha