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Banks exploring bailout of struggling bond insurer FGIC: WSJ.

NEW YORK, Feb. 5 Kyodo

A group of banks is in early discussions to arrange a possible bailout of Financial Guaranty Insurance Co. as the bond insurer and its stakeholders consider a number of options, the Wall Street Journal reported in its online edition Tuesday, citing people familiar with the situation.

A successful capital plan for FGIC would represent the latest effort to shore up a weakened insurance business and avoid a wave of downgrades that could result in billions of dollars in losses, people familiar with the situation reportedly said.

At the end of last month, Fitch Ratings downgraded its rating on FGIC from ''AAA'' to ''AA,'' citing a delay in implementing recapitalization measures.

The developing plan -- the banks have had a series of meetings in recent days -- would mirror a more advanced plan to preserve the credit rating of bond insurer Ambac Financial Group Inc., the Journal said.

The bond insurers are dealing with the downgrades because they had guaranteed the principal and interest payments of securities underpinned by subprime mortgage loans. As those securities have decreased in value, that has put pressure on the bond insurers to ration capital.

A potential financial bailout of New York-based FGIC is being led by Calyon, the investment-banking unit of French bank Credit Agricole SA. The others in the bank group include Switzerland's UBS AG, France's Societe Generale, Citigroup Inc. of the United States, and Barclays PLC of Britain. BNP Paribas SA of France may join the group, according to the Journal.

The FGIC plan is in the early stages and may not produce a formal financial back-stop for the insurer, the report said.
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Publication:Japan Weekly Monitor
Date:Feb 10, 2008
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