French banks buy out CIFG

23 November 2007

Caisse d'Epargne and Banque Populaire have promised a $1.5 billion cash injection for CIFG in order to help it maintain its credit rating, and effectively buying it out.

The bond insurer has struggled since the sub-prime crisis has spread from the US to France and credit ratings agencies had warned CIFG it would forfeit its triple-A rating if it could not find more capital.

The two mutual banks have pledged to buy CIFG from French investment bank Natixis, which has boosted the bank's share price by 16 per cent following a nosedive due to sub-prime concerns.

"CIFG was in the highest risk category of needing fresh capital to avoid a downgrade from both Moody's and Fitch," RBS analyst Michael Cox noted. "[CIFG] is the smallest of the seven triple-A monolines, with around four per cent of the total net par insured across the wrapped sector."

"Given the potential consequences of a downgrade, particularly in the $1,300 billion US municipal market with its retail investors, and that the two major investors in the most exposed monoline insurer have been prepared to back it, today's news is likely to provide the market with some comfort that a solution can be found that will prevent a downgrade to the major monolines," he wrote.

After the announcement, Fitch confirmed that CIFG would maintain its triple-A rating.

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