Jan. 24 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc. fell in New York trading as the state's insurance regulator said a rescue for bond guarantors will ``take some time'' and analysts cast doubt on the agency's ability to manage the task.

``Clearly it is important to resolve issues related to the bond insurers as soon as possible,'' Insurance Superintendent Eric Dinallo said in an e-mailed statement. ``However, it must be understood that these are complicated issues involving a number of parties.'' MBIA and Ambac, the industry's two largest firms, are both based in the state.

Dinallo met with executives of banks and securities firms yesterday to ask them to extend capital to bond insurers and stave off credit rating reductions. A rescue would need to be arranged before Moody's Investors Service and Standard & Poor's complete their reviews in the next few weeks. A downgrade may reduce the value of $2.4 trillion of debt the insurers guarantee, spawning losses on top of the $133 billion already posted by the world's biggest financial firms.

Security Capital Assurance Ltd., hobbled by deterioration in its financial guarantee portfolio, lost its AAA bond insurer grade at Fitch Ratings today, throwing the rankings of at least $154.2 billion of securities in doubt. Fitch downgraded Ambac from AAA earlier this month.

Armonk, New York-based MBIA fell $2.21, or 13 percent, to $14.40 in New York Stock Exchange composite trading. New York- based Ambac dropped $2.37, or 17 percent, to $11.33, leaving both down more than 80 percent in 12 months. Security Capital, based in Bermuda, declined $1.16, or 31 percent, to $2.63, a 90 percent loss for the past year.

Goals and Obstacles

The meeting convened yesterday by Dinallo in New York lasted about two hours and included some of the world's largest banks and securities firms, said a person familiar with the gathering, who wasn't authorized to speak publicly. Among those represented were Goldman Sachs Group Inc., Merrill Lynch & Co., JPMorgan Chase & Co., Citigroup Inc. and Wachovia Corp., the person said.

``We believe it is important that the goals of market stability, protection for policyholders and a healthy and competitive bond insurance market be realized in the near future,'' Dinallo said in the statement. Andy Mais, a spokesman for Dinallo, said the insurance superintendent would have no further comment.

Michael DuVally, a spokesman for Goldman, Merrill spokeswoman Jessica Oppenheim, JPMorgan's Tasha Pelio, Citigroup's Dan Noonan, and Wachovia's Christy Phillips-Brown all declined to comment on whether their companies participated.

``We're very interested in finding out more,'' Ambac spokesman Peter Poillon said today. MBIA spokeswoman Elizabeth James didn't immediately return a call seeking comment.

SuperSIV Redux

Any rescue plan may be fraught with the same difficulties that befell Treasury Secretary Henry Paulson's attempt last year to lead a bank bailout of structured investment vehicles, said analysts including Seth Glasser at Barclays Capital Inc. Dubbed SuperSIV, the effort was ultimately dropped after banks failed to reach agreement.

``It could be very hard for the bank group to agree on a breakdown for contributions,'' Glasser said. ``Similar to the superSIV proposal that ultimately fell apart, banks and dealers have different sizes of'' exposure to the insurers. That may make some more supportive than others, he said.

If Dinallo succeeds, the insurers may get fresh capital of as much as $15 billion, the Financial Times said on its Web site yesterday. The figure may be smaller, a person familiar with the talks told Bloomberg yesterday. Dinallo may also need to act before the ratings firms downgrade bond insurers.

Raising Funds

Ratings reviews typically are completed within one to three months, said Anthony Mirenda, a spokesman for Moody's in New York.

``Nothing we have seen so far assures us that the size or breadth of the effort is likely to help,'' Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California, said of the bond insurer rescue talks in a note to clients today.

Dinallo will be trying to persuade banks to contribute while they're still raising new funds for themselves, said Joshua Rosner, managing director at New York-based research firm Graham Fisher & Co. Citigroup, the biggest U.S. bank, and Merrill Lynch received $21.1 billion from investors last week.

The bond insurers sold credit derivatives to banks and other investors, taking on the risk of subprime securities such as collateralized debt obligations, and allowing banks to avoid writing them down as the underlying value of the securities slumped. Without their AAA ratings, the value of that protection is reduced and banks would be forced to take writedowns.

`Difficult to Gauge'

Merrill as of Dec. 28 had bought $19.9 billion in protection from financial guarantors to hedge against losses on $30.4 billion in CDOs, the firm disclosed in financial statements this month. The firm wrote off $2.6 billion of that, though, after ACA Capital Holdings Inc., had its ratings cut 12 levels to CCC.

Other firms haven't disclosed as much detail about their exposure to the bond insurers.

The bond insurers spent much of the past 30 years insuring municipal debt, enabling them to produce regular annual profits. They have been hobbled by their expansion into mortgage securities that are now tumbling in value as defaults on the underlying loans rise to records.

A downgrade would strip the AAA guarantee from $1.2 trillion of municipal bonds. Many funds aren't permitted to own debt rated below AAA and may be forced to dump any securities with lower underlying ratings.

``We need action,'' said Matt Fabian, managing director at Concord, Massachusetts-based Municipal Market Advisors, in an interview. ``If someone can save the bond insurers, they should be doing it right now.''

Congress Action

U.S. insurers are overseen by the states rather than federal regulators, with New York taking a lead role. Dinallo's effort to rescue the bond guarantors received encouragement from Federal Reserve Bank of New York President Timothy Geithner, said a person with knowledge of the matter.

Members of Congress said today they plan to hold hearings in February to examine how potential cuts to the insurers' credit ratings may affect cities' ability to raise money.

The downgrades may ``have the potential to affect all aspects of the financial marketplace,'' said U.S. Representative Paul Kanjorski, the Pennsylvania Democrat who leads the House Capital Markets Subcommittee, in a statement today.

Dinallo's Streamlining

In just over a year, Dinallo, 44, has proposed streamlining insurance regulations and suggested loosening rules that require reinsurers based outside the U.S. to reserve more capital than domestic companies. Last month, he enticed Warren Buffett's Berkshire Hathaway Inc. to create a new bond insurer that will compete with MBIA and Ambac.

Dinallo left a job as general counsel for insurance brokerage Willis Group Holdings Ltd. in December 2006 to take the superintendent's position under Governor Eliot Spitzer. The two had worked together when Spitzer was New York attorney general, and Dinallo's probes of Wall Street research helped raise Spitzer's profile.

Credit-default swaps tied to Ambac and MBIA rose today after plunging the most ever yesterday. A higher price reflects more investor doubt about a company's ability to pay debts.

Contracts on Ambac rose to 14.5 percent upfront and 5 percent a year, from 13 percent upfront and 5 percent a year yesterday, according to CMA Datavision in New York. That means it cost $1.45 million initially and $500,000 a year to protect $10 million in Ambac bonds from default for five years, down from $3.2 million upfront and $500,000 a year in Jan. 22 trading.

MBIA rose to 12.5 percent upfront and 5 percent a year, from 12 percent upfront and 5 percent a year late yesterday, CMA prices show.

Contracts on MBIA, Ambac and other bond insurers reached record highs at the start of the week as investors rushed to hedge against the risk the companies will collapse.

To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net

Last Updated: January 24, 2008 17:08 EST