Bloomberg News

Dexia's FSA Posts Loss in Quarter on Bond Markdowns (Update1)

February 12, 2008

Financial Security Assurance Holdings Ltd., the U.S. bond insurer owned by Dexia SA (DEXB), had a loss of $92 million in the fourth quarter because of a slump in the value of derivatives.

The loss compares with a profit of $92.8 million in the year-earlier period, the New York-based company said today in a statement. FSA's full-year loss totaled $66 million from net income of $424 million in 2006.

The bond insurer said its mark-to-markets for its insured derivative holdings were because of tightening credit conditions and that none of them resulted from risky U.S. mortgages. Markdowns amounted to $186.2 million in the fourth quarter and $443.6 million for the year.

``These markdowns have nothing to do with subprime and we'll recuperate them in coming years,'' Jacques Guerber, vice president of Dexia's management board, said in a conference call with journalists. ``Our loss isn't brilliant, but it's much less than what we've seen elsewhere.''

Swaps Soar

Credit-default swaps have risen to records on concern bond insurers may be unable to meet their obligations as the subprime-mortgage securities and collateralized-debt obligations they guarantee decline in value.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Credit- default swaps are a kind of derivative used to speculate on the ability of companies to repay their debt or to hedge against the risk they don't.

Without the markdowns, FSA said its operating profit rose 9.5 percent in the quarter to $94.3 million. Present-value originations, a measure of new business won, rose 8.9 percent to $318.4 million in the quarter and 40 percent to $1.27 billion for the year.

MBIA Inc. (MBI:US) and Ambac Financial Group Inc. (ABKFQ:US), the world's largest bond insurers and FSA's main rivals, reported a combined loss of $5.5 billion in the fourth quarter after a slump in the value of their guarantees on subprime-mortgage securities.

``In the previous years, Dexia and FSA have deliberately avoided the most dangerous sectors of the monoline business,'' Axel Miller, Dexia's chief executive officer, said in the statement.

Dexia, a Paris and Brussels-based lender to local governments, said last week that it's injecting an additional $500 million into FSA to help it grow and take advantage of problems faced by some of its competitors.

Fitch Ratings, Moody's Investors Service and Standard & Poor's last month all confirmed FSA's AAA rating.

Dexia will report fourth-quarter earnings on Feb. 19.

To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net.

To contact the editor responsible for this story: Adrian Cox on acox2@bloomberg.net


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