Banks likely to need $143b capital boost

New York: Global banks may need to raise up to $143 billion in additional capital to offset possible losses on securities backed by the beleaguered bond insurance industry, Barclays Capital analysts said in a report.

These 'wrapped' securities are vulnerable to be downgraded after the insurers' own credit ratings were lowered due to heavy losses from their subprime mortgage exposure.

Any downgrades on 'wrapped' securities would hit bank capital in two ways - lower their market value and raise the capital requirement for owning riskier securities, Barclays analysts wrote in its weekly European credit research report.

Recently, a unit of Ambac Financial Group, one of the biggest bond insurers, lost its top triple-AAA rating. MBIA's unit MBIA Insurance, the biggest bond insurer, faces possible ratings cuts.

Top-end estimate

The top-end estimate for additional capital assumes that banks were holding 75 per cent of the securities backed by monoline insurers, worth $615 billion, the analysts said.

"This is a huge amount, but the assumptions we use... are also very aggressive, designed only to show how, taken to its extreme and assuming all monolines get downgraded significantly, bank capital could be influenced," they said.