French banks act to save bond insurer CIFG

Two French banks, Caisse d'Epargne and Banque Populaire, will inject $1.5 billion into the New York-based financial guaranty company CIFG to prevent it losing its AAA credit rating.

CIFG is a subsidiary of Natixis, which in turn is owned by Caisse d'Epargne and Banque Populaire. The banks said the capital increase will be made available in the coming month and that they will also buy CIFG from Natixis "as quickly as possible".

CIFG had a total of $11.3 billion exposure to subprime mortgages, either directly through guarantees of residential mortgage-backed securities or indirectly through guarantees of collateralised debt obligations, at the end of June this year, according to a report it issued last month. It said on October 5 that it was "comfortable" with its level of exposure, which implied a loss of $93.2 million in highly stressed conditions.

Despite the bailout, rating agency Standard & Poor's cut both Caisse d'Epargne and Natixis to "negative outlook" from "stable", saying it was concerned about the banks' ability to improve profitability and maintain a strong capital base.

See also: Ratings figure