By Richard Barley
LONDON (Reuters) - Potential problems at monoline bond insurers pose a big risk to financial markets, but any fallout should be less than previous problems related to collateralized debt obligations, the head of Deutsche Bank said.
"In my view, a big risk is the monoline insurers," Josef Ackermann, chief executive officer of Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz), said at the Reuters Finance Summit in London on Thursday. "If we had some kind of change in stability of that sector ... that would have again a very strong impact on financial assets."
Fitch Ratings this week said the triple-A ratings of some bond insurers, which insure municipal, asset-backed and other debt, could be downgraded due to their exposure to structured finance CDOs unless more capital is raised or risk is cut.
The ratings agency said CIFG Guaranty and Financial Guaranty Insurance Co. were most at risk of downgrades.
It said Ambac Assurance Corp. (ABK.N: Quote, Profile, Research, Stock Buzz) and Security Capital Assurance faced moderate probability of capital erosion, while MBIA (MBI.N: Quote, Profile, Research, Stock Buzz) had a low probability.
Analysts at Royal Bank of Scotland said in a recent note that a downgrade could be "catastrophic" for the insurers' ability to write new business and would hurt the market's view of insured bonds.
Credit default swaps on bond insurers have surged higher this year, indicating investors see more risks in their debt.
Ackermann noted that if there were forced liquidation of assets insured by bond insurers, again selling would be focused on the most liquid assets, causing unexpected price and correlation movements.
However, he said that any market impact would be less than previous turbulence.
"It's not comparable to the CDO bubble, but it could add another instability to the market. In a situation where it's starting and trying to normalize, this could be another wave against it," Ackermann said. "But it will not be as big as the first wave."
(Reporting by Richard Barley; Editing by Andrew Callus)
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