Jan. 25 (Bloomberg) -- Banks that raised $72 billion to shore up capital depleted by subprime-related losses may require another $143 billion should credit rating firms downgrade bond insurers, according to analysts at Barclays Capital.

Banks will need at least $22 billion if bonds covered by insurers led by MBIA Inc. and Ambac Assurance Corp. are cut one level from AAA, and six times more for downgrades by four steps to A, Paul Fenner-Leitao wrote in a report published today. Barclays' estimates are based on banks holding as much as 75 percent of the $820 billion of structured securities guaranteed by bond insurers.

``This is a huge amount, but the assumptions we use are also very aggressive,'' Fenner-Leitao in London said in a telephone interview. The estimate shows how bank capital could be diminished in the event of significant downgrades, he said.

The risk of a deeper capital shortfall may help explain why New York's Insurance Superintendent Eric Dinallo is trying to arrange a bank-led bailout of the bond insurers. Downgrades would cast doubt on the credit quality of $2.4 trillion of bonds the industry guarantees.

Dinallo met with executives of banks and securities firms this week to ask them to extend capital to bond insurers and stave off credit rating reductions.

``Barclays Capital has come up with a very big and very scary number,'' said Donald Light, an insurance analyst at Boston-based consulting firm Celent. ``It indicates that the cost of a bailout of the bond insurers is a lot less than the cost of shoring up these banks' mark-to-market losses.''

Merrill Writedowns

Fitch Ratings cut New York-based Ambac by two levels to AA last week, triggering downgrades for 420 U.S. asset-backed securities as well as debt sold by companies from London soccer club Arsenal Holdings Plc to Sydney Airports Finance Co.

Fitch is likely to cut the rankings of other bond insurers in the ``very near term,'' with Financial Guaranty Insurance Co. at greatest risk, Fenner-Leitao wrote in the report. New York- based FGIC insures $315 billion of bonds.

Standard & Poor's cut New York-based ACA Capital Holdings Inc.'s rating by 12 levels to CCC last month, causing Merrill Lynch & Co. to write down $1.9 billion of securities and Canadian Imperial Bank of Commerce to sell more than C$2.75 billion ($2.7 billion) in stock to cover writedowns.

Merrill Lynch in New York, the largest brokerage, raised $6.6 billion from a group led by Tokyo-based Mizuho Financial Group Inc., the Kuwait Investment Authority and the Korean Investment Corp. New York-based Citigroup, the biggest U.S. bank, is getting $14.5 billion from investors including the governments of Singapore and Kuwait, former Chairman Sanford Weill and Saudi Prince Alwaleed bin Talal.

Banks may sell stock or subordinated debt to raise additional capital to cover bond insurer downgrades, the Barclays report said.

Wilbur Ross

MBIA Inc., the largest bond insurer, based in Armonk, New York, and Ambac in New York, the No. 2 so-called monoline, are on review for a possible downgrade by Moody's Investors Service and Standard & Poor's.

Ambac rose today amid speculation that billionaire Wilbur Ross will buy the company. A deal may come within the next two weeks, the Evening Standard newspaper in London reported on its Web site.

To contact the reporter on this story: Steve Rothwell in London at srothwell@bloomberg.net

Last Updated: January 25, 2008 13:57 EST