Fitch Ratings looked at the potential impacts that a monoline split could have on the protection bought by banks from the financial guarantors, including on structured finance CDOs. The rating agency also examined the effects on the financial guarantors themselves. "The current situation is highly fluid," said Jim Batterman, a managing director at Fitch. What the market is concerned about is that a negative reassessment of financial guarantor counterparty risk might effectively result in a significant reversal of mark-to-market gains for the institutions, such as banks, that bought protection from the financial guarantors, Batterman added. Further, while some of these same protection buyers might have also hedged their counterparty exposure to the financial guarantors by purchasing protection on the financial guarantor (or its holding company) itself, Fitch said people should also consider the nuances of ISDA language, particularly in terms of settlement and succession, should these monolines be split apart.

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