New York Insurance Superintendent watching bond insurers, may intervene Fri Jan 18, 2008 4:28pm EST By Joseph A. Giannone NEW YORK, Jan 18 (Reuters) - New York Insurance Superintendent Eric Dinallo on Friday said the state is monitoring the struggles of bond insurers and would be willing to help broker capital infusions to keep these market players afloat. "We are very mindful of the situation and are as reasonably on top of it as we can be," Dinallo told Reuters on the sidelines of a press conference, where New York Governor Eliot Spitzer had outlined plans to update the state's financial services regulation. Dinallo declined to comment on the state's efforts specific to Ambac Financial Group (ABK.N: Quote, Profile, Research), a bond insurer that has been hammered by losses stemming from the mortgage crisis and a ratings cut on Friday.. Dinallo spoke shortly before Fitch Ratings cut its top "AAA" for Ambac Assurance Corp to "AA" after the bond insurer scrapped plans to issue $1 billion of new equity. Standard & Poor's said it also may slash its "AAA" rating for Ambac as well. "I can say one thing: We are there, to help facilitate an injection of capital, if that ends up being the right idea, or if things go in the wrong direction, to do a quick rationalization of their situation," he said. Dinallo said the state has broad authority and is working with other states and federal U.S. agencies on the matter of struggling bond insurers. "I think the role of the regulator has to be a facilitator. To speed in or somehow facilitate those possible bailouts or transactions, that is our number one goal as a regulator right now," he said. Dinallo played a role last month in convincing Warren Buffett's Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research) to launch a bond insurer, Berkshire Hathaway Assurance Corp. Berkshire has very strong credit ratings and is expected to help keep the state's borrowing costs down. Municipal issuers finance such things as hospitals, road construction, schools, sewer systems and sports facilities. They often seek bond insurance to reduce the risk of owning their debt, which can attract more investors and reduce borrowing costs and saving taxpayers money. (Reporting by Joseph A. Giannone; Editing by Brian Moss, Leslie Gevirtz)
All those insurers and credit derivative sellers should be forced to work under a mark to market and margin system just like option and future traders. Market not liquid? then put up 100% portfolio margin, no leverage, sorry. Not profitable? No bailout either, sorry. Counterparty risk would essentially disappear, and this would create a lot more confidence than BS rate cuts and fiscal stimulus packages.
Cramer on Hardball predicts a 2000 pt drop in the Dow when these guys (Ambac and MBIA) go belly up (next week? Ambac reports Tuesday). He said govt will have to intervene on behalf of these guys. It is interesting Bernanke hasn't said anything regarding this but then again, the Princeton economic textbooks probably don't cover real world events.
the bailout would have to be paid by someone. I find it hard to believe the treasury would be able to use tax payer money it would be a hard sell for them. banks would not want to use their money to fund bond insurers losses(ala 98) since thats the very thing they are trying to avoid(losing capital by having the bond insurers force them to mark down their assets) they might prefer just mark them down instead. I dont see buffett buying abk or mbi,their way too big and risky, too many uncertanties and management are not 'straight shooters' like he likes. so I believe the banks will end up taking in the chin. all the sudden jim rogers $5 citi call doesnt seem so nuts
Monoline Insurers Can't Make It Originally published on Jan. 16 at 12:33 a.m. EST Remember what Eric Dinallo, the powerful New York State insurance commissioner, said on my TV show about regulating the monoline insurers: They must protect the bondholders, not just the holders of Wall Street-generated paper like residential mortgage-backed bonds. I am sure when he sees the news out of Ambac (ABK - Cramer's Take - Stockpickr - Rating) today he must be worried that it is time to be concerned that some of these companies cannot make their obligations. He has to step in and separate the insureds, and I don't know how he can do it other than to force some of them to split up and force them to take reserves to help the everyday munibond holders. The only way I know he can do it is if he pushes for a prepackaged bankruptcy that allows an Ambak or an MBIA (MBI - Cramer's Take - Stockpickr - Rating) to be merged with a Buffett affiliate, which only has to guarantee the munis and let the CDOs go. I see no choice. Those who are buying these stocks must know something I don't know. When I said I thought the financials bottomed last week because they were down 50%, I figured it was because when they were down 50% in 1990, the Fed got on the case and started giving them some net interest margin. But I specifically said that MBI/ABK and their sisters, PMI (PMI - Cramer's Take - Stockpickr - Rating) and MGIC (MTG - Cramer's Take - Stockpickr - Rating), can't make it. That's what we are seeing today with Ambac (ABK - Cramer's Take - Stockpickr - Rating). It will have to give away the store to get financing, and I don't think that Dinallo will allow them to give it away too much longer. I am betting he intervenes, and then all investing will be off, and the common shareholders may get nothing.
So.. It looks like Dinallo will step in on behalf of muni bondholders and force some kinda of deal. Thereby roping off CDO's losses from the rest of ABK and MBIA's portfolios. CDO's prices have already pretty well priced in massive housing foreclosures if you look @ the ABX indices. This would be the solution that keeps the banks from taking further losses on other credit positions associated with ABK and MBIA's AAA rating. Whatever entity that assumes the non-CDO portfolios would retain the AAA rating. Perhaps some sort of entity controlled by Buffett or some other well respect well capitalized entity. Of course if this plan doesn't materialize INSTANTLY, then the financials well continue to be pounded into the ground next week. any other ideas out there?
if he intervenes it and puts ambac on http://en.wikipedia.org/wiki/Administrative_receivership in the name of policy holders I expect to all hell break loose and the stocks to be trading at one dollar soon. But if there is some kind of bailout financed by god knows who I expect to get short squeezed and lose a lot of money, there will be dilution though
ABK and MBIA stocks are just footnotes now. The main issue now is counterparty risk. If the uncertainty continues all hell will break loose in financial markets. Which at this time is looking like the most likely outcome.