Dresdner Bank ready to join Ambac rescue

Munich's landmark Frauenkirche (womens church) is reflected in a window of the Munich branch office of Dresdner Bank February 19, 2008. Dresdner Bank, part of the Allianz insurance group, intends to support a rescue package for U.S. bond insurer Ambac Financial Group Inc with a sum in the low double-digit millions of euros, the head of Dresdner's investment banking operations said on Monday.

FRANKFURT/ZURICH (Reuters) - Dresdner Bank intends to support a rescue package for U.S. bond insurer Ambac Financial Group Inc ABK.N, but other major European banks declined to say if they would step in.

Stefan Jentzch, head of the investment banking operations of Dresdner, which is part of insurer Allianz (ALVG.DE), said various rescue options for Ambac were under discussion.

"If what is now on the table comes to pass then we will take part in the package," Jentzch told reporters at the German bank's annual news conference on Monday, adding Dresdner was ready to put up a sum in the low tens of millions of euros.

But other European banks with major investment banking divisions, who might have an interest in helping to recapitalize Ambac, were reluctant to comment on whether they would play any part in a capital injection for Ambac.

Spokesmen for UBS (UBSN.VX), Deutsche Bank DBKGn.PA and BNP Paribas (BNPP.PA) said they had not comment on whether their respective financial institutions might be involved.

Barclays (BARC.L) and Royal Bank of Scotland (RBS.L) also declined to comment.

A banking source in London, who asked not to be identified, said moves to recapitalize Ambac were making progress but doubted whether anything would be announced on Monday.

Dresdner is one of several banks working on a deal that could shore up Ambac's balance sheet and preserve its top credit rating, thus avoiding a credit rating downgrade that could force investors to sell billions of dollars of securities.

Jentzsch said he saw no acute problems at any other bond insurers, known as monolines.

A source familiar with the matter said over the weekend that a rescue deal for Ambac was likely to involve raising about $2.5 billion of equity and $500 million of debt.

Credit analysts said it would make sense for European banks to play a part in injecting fresh equity into Ambac.

"The counterparties and people who used them (U.S. monoline insurers) are obviously both in Europe and the United States," said Simon Adamson at CreditSights in London.

"I think it would primarily be the big investment banks where you have seen involvement in subprime and structured credit, which would include British, French, German and Swiss banks," said Adamson.

If a capital contribution of around $3 billion is spread around a dozen or so banks, the cost to each institution of supporting Ambac would be quite small but they would have to be convinced that it would solve the bond insurer's woes, he added.

A person familiar with the matter told Reuters on Friday that a rescue package for Ambac could be announced on Monday or Tuesday, and prospects for such a deal supported global financial markets.

"This is the one big piece of speculation that emerged over the weekend," said Dirk Becker, a banking analyst at Landsbanki Kepler's Frankfurt office.

"A rescue of Ambac would temporarily help the sector if investors can avoid all the markdowns on paper insured by Ambac," he added.

The DJ Stoxx index of European banks .SX7P advanced 2.09 percent by 1545 GMT and shares in Ambac rose by as much as 7.3 percent on Monday on hopes a deal might be close.

Ambac, facing billions of dollars of losses from guaranteeing repackaged subprime mortgages, is talking to banks and regulators about raising extra capital to keep its top credit ratings.

The source said on Friday that a deal had not yet been signed and may still fall through, but talks with banks including Citigroup Inc (C.N), UBS AG (UBSN.VX) and Wachovia Corp WB.N were advancing.

(Reporting by Patricia Nann; Additional reporting by Dan Wilchins in New York, Sudip Kargupta in Paris and Steve Slater in London; Editing by David Cowell)