Bond Insurer Woes to Hit Three Banks Most

Bank writedowns related to monoline bond insurers will be concentrated largely at firms UBS(UBS Quote), Citigroup(C Quote) and Merrill Lynch (MER Quote), according to an Oppenheimer & Co. report released on Wednesday.

Oppenheimer financial analyst Meredith Whitney estimates that the risk of downgrades by rating agencies of monoline names MBIA(MBI Quote) and Ambac Financial(ABK Quote) would rack up at least $40 billion in writedowns and as much as $75 billion. UBS, Citi and Merrill would be among the hardest hit because those institutions hold about 44% to 45% of the risk exposure.

As a result, Whitney notes that a systemic banking crisis caused by monoline downgrades might not be as great a risk as many believe, given the disproportionate exposures at the three banks. New York Insurance Superintendent Eric Dinallo is spearheading an effort involving major Wall Street banks to craft a massive rescue plan to preserve the insurers' critical triple-A ratings, but said last week that any action will "take some time." ...