Bond Insurers Seen Needing Up to $200 Bln

By Neil Shah

NEW YORK (Reuters) - A government-brokered rescue plan for U.S. bond insurers of about $15 billion came under fire on Friday, with analysts saying the ailing insurers may need as much as $200 billion to remain viable.

A cash infusion would allow the bond insurers to maintain their top credit rating, which is critical to their business of guaranteeing some $2.5 trillion of municipal bonds and asset-backed securities.

Analysts warned some investors would face huge write-downs on the valuation of securities guaranteed by the insurers if they lost their top credit rating, dealing another blow to a bruised U.S. economy. Those concerns contributed to a recent sell-off in stocks.

New York State Insurance Superintendent Eric Dinallo pressed major Wall Street banks this week to contribute billions of dollars to support the bond insurers, also known as "monoline insurers."

Some observers on Wall Street and elsewhere believe the New York state-orchestrated plan, which is only in the initial stages, may not go far enough.

"The numbers being bandied about of a $15 billion infusion into the monolines looks to us to be like putting a Band-Aid on a gushing wound," said analysts at hedge-fund Bridgewater Associates in a report to clients on Thursday.

They added that "looking at the price movements on the instruments they insure as well as their existing reserves, we would suggest they would need at least $70 billion on top of current reserves."

Sean Egan, managing director of independent credit-rating firm Egan-Jones Ratings Inc, said he expects roughly $80 billion of eventual losses for the top six monoline insurers.