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November 22, 2007


CIFG, the French bond insurer, seeking rescue funding in one of Europe's largest credit crunch bailoutsChristine Seib
The French financial sector was hit by the spreading sub-prime mortgage crisis today after Banque Populaire and Caisse d’Epargne were forced to offer a $1.5 billion (£727 million) bailout to CIFG, the bond insurer.

The $1.5 billion injection is one of the largest bailouts in Europe after sub-prime mortgage contagion spread to IKB, the German bank, that was saved from collapse with a €3.5 billion (£2.5 billion) rescue from other banks.

Banque Populaire and Caisse d’Epargne, owners of the French bank Natixis, said today that they would provide the "required financial resources" to stave off a downgrade from the ratings agencies, Moody's and Fitch. CIFG, which is owned by Natixis, currently has a AAA-rating that is vital for the insurer to raise funding.

Bond insurers offer cover to banks on the safest tranches of collateralised debt obligations (CDOs).

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But with even prime mortgages losing value as a knock-on effect of the sub-prime credit crisis, the monolines have had to pay out their customers' loss claims. Meanwhile, the bond insurer's own investments in CDOs have also lost value.

In the US, Bear Stearns had to rescue one its hedge funds by taking on $3.2 billion of its debt while Goldman Sachs was forced to support its Global Alpha Fund when investors withdrew $1.5 billion.