Three of the world’s largest investment banks could potentially face writedowns of up to $10bn (£5.1bn) after their bond insurers were downgraded by Standard & Poors last week, reports The Financial Times.

According to analysts Citigroup, Merrill Lynch and UBS have hedged their collaterised debt obligations and mortgage backed securities of $6.3bn (£3.23bn), $4.8bn (£2.46bn) and $3bn (£1.5bn) respectively with insurers Ambac and MBIA.

Wall Street executives were surprised by S&P’s decision to downgrade Ambac and MBIA from a trip A rating in February and March to a double A last week with Moody’s expected to downgrade Ambac to double A and perhaps cut MBIA to a single A shortly.

‘They and other credit rating agencies have been under pressure to anticipate developments, rather than lag behind the curve, and this looks like an attempt to do just that,’ said a Wall Street executive.

The prospects of further writedowns related to bond insurers, also known as monolines, could deepen concerns over the financial health of US and European banks.

Ambac and MBIA, which guarantee more than $1,000bn (£512bn) of bonds, raised cash earlier this year to prop up their capital bases, damaged by exposure to mortgage-backed bonds.

Although concerns have eased that bond insurer downgrades could damage the entire financial system, there remains the potential for individual banks and investors to suffer further pain from Ambac and MBIA’s problems.