FGIC Corp. said that its exposure to mortgage losses exceeded legal risk limits, raising more doubt about its future, as the bond insurer said it was walking away from an agreement to provide $1.9 billion in guarantees on certain securities linked to home loans.
New York-based FGIC, the parent of Financial Guaranty Insurance Co., said its exposure to claims exceeded risk limits required by the state.
"This is a bombshell," said Rob Haines, senior insurance analyst at CreditSights in New York. "They are actually in violation of New York insurance law. If they don't remediate this, the state has the ability to take control of the company."
He said FGIC would need to raise about $2 billion to stabilize the company.
An FGIC spokesman characterized the issue as a "technical violation."
New York Insurance Supt. Eric Dinallo's office said it was reviewing the new information.
Separately, FGIC said it "had no further obligation" to provide $1.9 billion in guarantees on mortgage-linked securities because Credit Agricole and IKB Deutsche Industriebank didn't live up to their side of the deal.
The three companies are fighting the matter in courts. If FGIC wins, the benefit "could be material," FGIC said.