Bond insurance strong
BRUSSELS, June 23 (Reuters) – The bond insurance business of Dexia’s U.S. unit FSA is strong and a $5 billion credit extended to it is simply to give markets and rating agencies a clear signal, the Franco-Belgian group’s CFO said.
“It’s really an answer to an attack from Pershing. We have received no call from the rating agencies asking for us to do that. What we intend to do is remove any doubt on the quality of the signature of FSA given the noise from Pershing,” Dexia Chief Financial Officer Xavier de Walque told Reuters by telephone.
Dexia said on Monday it would provide the credit line to Financial Security Assurance (FSA) after William Ackman, who runs the Pershing Square Capital Management hedge fund, said he was betting against Dexia’s unit.
Ackman, who had correctly predicted a drop in the shares of FSA rivals MBIA Inc and Ambac Financial Group, told a conference in New York last week that the market had not woken up to concerns about FSA.
Dexia has repeatedly stressed that FSA avoided risky asset-backed security collateralised debt obligations (ABS CDOs), unlike its chief U.S. monoline insurance rivals.
FSA is now one of only two bond insurers to retain a triple-A credit rating.
That helped it secure a 64 percent share of the market for credit enhancement of municipal bonds in the first quarter.
De Walque said the market share had remained strong in the second quarter.
“The signature of FSA is considered very strong. It is not pure chance … A lot of investors ask us to give a second wrap, a second insurance, on the bonds as they consider the first insurance is nothing,” De Walque said.
Dexia itself wrote down 5 billion euros in the first quarter, reflecting mark-to-market adjustments for its AFS (available for sale) bond portfolio. That improved by 700 million euros in April.
De Walque said there was unlikely to have been much change since, although it was very difficult to quote a figure for its level at present given market volatility.
“Relative to the end of April, it’s roughly the same. Some assets are better, some less good. It’s very difficult to give guidance.”