March 20, 2008 / 3:12 PM / in 10 years

UPDATE 1-Assured Guaranty shares fall after Citi downgrade

(Recasts; adds details, share movement)

March 20 (Reuters) - Shares of Assured Guaranty Ltd (AGO.N) fell as much as 10 percent after Citigroup cut its rating on the bond insurer, citing difficult conditions in the mortgage market.

The company might need to raise its reserves to handle further erosion in the residential mortgage-backed securities of the home-equity portfolio, analyst Heather Hunt said in a note to clients.

Current market distress was likely to add to non-cash mark-to-market losses in the first quarter, Hunt added. The company may face increased competition once Ambac Financial ABK.N and MBIA (MBI.N) re-enter the market.

Hunt, however, increased the price target on Assured shares by $3 to $28 and said the stock was expected to be range-bound in the near term, but strong in the long term.

The $1 billion commitment from billionaire Wilbur Ross is a positive as it increases Assured’s capacity to underwrite as well as acquire blocks from weakened peers, Hunt added.

In February, Ross agreed to invest up to $1 billion in Assured, bypassing big bond insurers such as Ambac in favor of a rival that has largely avoided the credit problems plaguing the industry.

Assured shares, which have lost more than 13 percent of their value since January, were down more than 2 percent at $23.05 in morning trade on the New York Stock Exchange. They touched a low of $21.15 earlier in the session. (Reporting by Sweta Singh; Editing by Himani Sarkar)

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