After announcing net losses of $330.5 million for the second quarter of 2008 and $752.1 million for the first half, Financial Security Assurance (FSA) announced that it is exiting the ABS business and will focus primarily on public finance.

The losses in the fist half were primarily driven by the bond insurer's financial guarantees of second-lien RMBS.

““Comparing the significant volatility observed in the ABS/RMBS markets against the broad and deep opportunities in the lower risk public finance markets, we have concluded that we can create greater value for issuers, investors and our shareholder by focusing solely on public finance activities,” Robert Cochran, chairman and chief executive officer at FSA, said in a statement.

The company also said that in the second quarter, it increased reserves for estimated losses on HELOC and Alt-A closed-end second-lien transactions and established a reserve for three option ARM insured transactions. This was based on expectations for more severe economic stress until the middle of 2009, at a minimum. FSA said it did not expect the U.S. economy to normalize until late 2010.

Dexia, the parent company of FSA, has given provided an additional $300 million in capital and said it will take responsibility for the liquidity and credit risk of the financial products business, which primarily issues guaranteed investment contracts.

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