MBIA Inc. Eliminates Quarterly Dividend to Preserve $174 Million, Further Strengthening Financial Resources and Increasing Operating Flexibility CNBC Gasparino says AAA rating have 1 week shelf life until insurer bailouts are reviewed.
Ambac Still Needs Ratings Firms To Approve Rescue By Charles Gasparino, CNBC On-Air Editor | 25 Feb 2008 | 02:14 PM ET A consortium of banks has largely finalized a deal to recapitalize troubled bond insurer Ambac Financial Group and is now trying to sell the plan to the rating agencies to save Ambac's triple-A rating, CNBC has learned. Though Standard & Poor's reaffirmed Ambac's rating on Monday, the insurer is still under review and could be downgraded in the coming days until details of the proposed recapitalization are presented and approved. A tentative structure for up to $3 billion in capital for Ambac has been agreed to by the consortium, which includes Citigroup Citigroup Inc The banks are trying to save Ambac, as well as other bond insurers, because a ratings downgrade could force the banks to write down billions more of their own debt that is backed by Ambac's insurance and current Triple A rating. It's unclear exactly when the deal will be announced officially, but it will hinge on getting the rating agencies to sign off on it, so it could be later this week or early next week. Though the structure of the deal is largely finalized, rating agency approval is crucial because bankers want to make sure that Ambac isn't downgraded after they put money into the bond insurer. Bankers and New York insurance regulators are still confident the deal will get done, but caution that it could blow up at any time depending on the what the rating agencies decide. The big rating agencies--Moody's, Standard & Poor's and Fitch --have been widely criticized for not catching the growing debt problems at the bond insurers earlier, so it's not out of the question that they will demand more capital be injected into Ambac. On Monday, S&P reaffirmed reaffirmed the Triple A rating on MBIA MBIA Inc the nation's biggest bond insurer, as well as Ambac, sparking a rally by both stocks and the market in general. S&P ended its downgrade review for MBIA's Triple A rating, citing success by the largest U.S. bond insurer in raising new capital, though the negative outlook suggests that the rating agency is still concerned about MBIA's ability to maintain its Triple A rating. But Ambac's triple A rating remained on review for downgrade until details of the planned recapitalization are clearer. Ambac remains on "negative creditwatch," which is worse than "negative outlook" because the time horizon for a possible downgrade is shorter. Still, the reaffirmation of the triple A rating is considered a positive for Ambac's stock pending the capital infusion. Moody's is also expected to announce something this week on the bond insurers. Bond insurers got into trouble by moving beyond guaranteeing safe municipal bonds and insuring risky subprime-related debt. The resulting loses are now threatening their prized triple A rating, which they need to attract new clients. Current clients, such as the banks, would also lose the triple A rating if the insurers get downgraded, forcing further writedowns of their debt. If an Ambac deal is reached, it would be a big victory for New York State Insurance Commissioner Eric Dinallo, who has been goading Wall Street to work out a deal for about six weeks. Dinallo has been working on separate plans with the bank consortium that may infuse capital and provide lines of credit to shore-up the bond rating businesses at FGIC and Ambac and prevent downgrades. MBIA recently raised several billion dollars in new capital from Warburg Pincus. But some analysts are increasingly skeptical that even with the infusion of cash, downgrades can't be avoided in the future because of the massive losses the insurers might take on their coverage of CDOs and other bonds that are packed with depressed subprime loans. As evidence, they point to recent management changes at MBIA and other moves. Recently, MBIA announced that it wants to split its municipal bond business to shield it from the losses on its business of insuring CDOs. The move is being seen as a way to placate regulators and bond raters as a decision nears. People inside the New York State insurance department, which has taken the lead in trying to prop up the insurers, say both MBIA and Ambac have enough assets to cover losses stemming from their insurance of depressed collaterialized debt obligations, or CDOs, held by large banks like Citigroup. The bigger question is whether these firms can compete with ratings less than triple-A, particularly now that the bond insurance business will be focusing on covering bonds of municipal governments. Many large investors of municipal debt can only hold securities with triple-A ratings. Meanwhile, a downgrade of MBIA and Ambac could pose big problems for the banks that hold bonds they insure. Analyst Meredith Whitney said on CNBC yesterday that the downgrades could cause writedowns of another $75 billion at the big banks.
This is a total comedy. 5 years to split company?? irregularities in accounting? bumpy ride for months or longer? UGLY MBIA Plans to Split Asset-Backed, Municipal Units (Update1) By Christine Richard Feb. 25 (Bloomberg) -- MBIA Inc., seeking to stave off a crippling credit rating downgrade, will separate its municipal unit from the asset-backed securities it guarantees within five years after posting record losses on subprime debt. The Armonk, New York-based company will stop writing asset- backed securities guarantees for six months, new Chief Executive Officer Jay Brown said in a letter to shareholders today. Brown also said he has ``questions'' about the company's 2007 preliminary results released last month and hasn't yet signed off the statements. MBIA has raised $2.6 billion in capital in the past three months and earlier today said it would eliminate its dividend amid scrutiny from ratings companies. S&P today said it is no longer reviewing MBIA's AAA rating for downgrade. The company, which insures $673 billion of municipal and asset-backed securities, faced criticism from ratings companies, lawmakers and regulators over its decision to expand into securities such as collateralized debt obligations. ``Everything we are working towards right now is centered on regaining stability,'' Brown said in the letter. ``We can expect a bumpy ride over the coming months and possibly longer.''
Brown also warned that MBIA may take another charge during the first quarter related to the market value of some of the company's credit derivatives transactions.
MBIA Issues Letter to Owners Last update: 16 minutes ago 2/25/2008 5:37:01 PMARMONK, N.Y., Feb 25, 2008 (BUSINESS WIRE) -- MBIA Inc. (MBI): Dear Owners: In my first letter to you last Tuesday the 19th, I told you that I believe the structure of the financial guarantee industry needs to be changed. I said that we are looking at a number of different approaches to transform MBIA with the goal of ensuring that if we're ever faced with an industry crisis even close to the magnitude of the one we're experiencing today, we would be in a position to maintain our operating flexibility and manage our capital needs on a more cost effective basis. We would continue to be more than capable of honoring our obligations to all of our policyholders, as we are doing today, while continuing to write new business. It's been a non-stop first week back for me, and I'm pleased to tell you that we've made a number of important decisions that will help guide the transformation of our business and allow us to achieve the goals that I laid out for you last week. Just last Wednesday I met with the Honorable Eric Dinallo, Superintendent of the New York State Insurance Department, and shared my vision of MBIA's future with him. We're in frequent and active contact with Mr. Dinallo and his team, who have been enormously supportive of our efforts. We're indebted to them for their guidance and encouragement throughout our discussions. We are also in close contact with the rating agencies to assure that our transformation strategy achieves the highest ratings for our insurance business. One of the points we've made clear in our discussions is that we will only restructure on a timeframe and in a manner that allows us to carefully consider the needs of all of our stakeholders. First among all considerations is that we will protect the interests of all of our policyholders. That is why, as soon as it's feasible but within a five-year period, we will restructure the company in such a way as to insure public and structured finance business from separate operating entities. We have already made the decision to cease ensuring new derivative credit contracts from our insurance companies. My goal is to retain the highest ratings that we can for both our structured and public finance businesses, and I believe this can be accomplished by separating these two business lines and leaving the derivative market to the traders on Wall Street. While we continue to evaluate our options, I have suspended the writing of all new structured finance business for approximately six months. Further, the flexibility and preservation of our capital remains a high priority for us.
"The report notes that bond insurers' ratings could hit a ``slippery slope'' because their liquidity is subject to ratings triggers at the AA- and A- ratings levels. " What a joke. This crap will drag on for months and years. Citi, Merrill Bond-Insurer Exposure Risks Downgrades (Update1) By Christine Harper Feb. 25 (Bloomberg) -- Citigroup Inc., Merrill Lynch & Co. and UBS AG, which already have negative outlooks, could face additional pressure on their credit ratings because of exposure to financial guarantors, Fitch Ratings said today. ``While these institutions have recently raised sizable capital, additional write-downs may put incremental pressure on their ratings when combined with other financial challenges,'' Fitch wrote in an e-mailed report today. Rating companies are demanding bond insurers such as MBIA Inc. and Ambac Financial Group Inc. add more capital or face downgrades because of losses on subprime-mortgage securities they guaranteed. Hedge-fund manager William Ackman, who has bet against both insurers, proposed restructuring the insurance units into separate municipal and asset-backed businesses. ``Any actual separation would likely be a difficult process with the possibility of legal challenges from counterparties, particularly from those who bought CDO protection,'' Fitch wrote, referring to collateralized debt obligations. ``Fitch will reassess the potential implications for financial institutions when such plans progress toward reality.'' U.S. banks and securities firms overall have ``manageable'' exposure to financial guarantors, the report said. ``In the event of moderate guarantor downgrades, losses taken by financial institutions should be well contained,'' Fitch wrote. ``Any substantial downgrades, particularly to below investment grade, would result in significant losses not to mention potentially costly knock on effects.'' The report notes that bond insurers' ratings could hit a ``slippery slope'' because their liquidity is subject to ratings triggers at the AA- and A- ratings levels. Standard & Poor's, a rival to Fitch, today affirmed its AAA financial strength ratings on both MBIA and Ambac and removed MBIA from CreditWatch negative. Ambac, the second-biggest bond insurer after MBIA, remains on CreditWatch negative.
"Feb. 25 (Bloomberg) -- U.S. stocks staged their biggest rally this month after Standard & Poor's kept AAA debt ratings for the nation's largest bond insurers, easing concern credit losses will extend the worst earnings slump since 2001. MBIA Inc. and Ambac Financial Group Inc., which rely on their top credit scores to guarantee $1.2 trillion in bonds, led gains in the S&P 500 Index and helped banks and insurers rebound from earlier losses." This AAA rating is about as credible as their AAA ratings on defaulting CDO's. What a joke.
GS says SCA's ability to write new business a concern http://www.reuters.com/article/marketsNews/idESBNG30709920080226?rpc=44
Fears that $3bn may not be enough to save Ambac Tom Bawden in New York A proposed $3 billion (£1.5 billion) bailout of Ambac, the bond insurer, by a consortium that includes Barclays and Royal Bank of Scotland could be at least a week away and may not be enough to rescue the firm. The banking consortium is trying to finalise a package amid fears that the financial decline of Ambac will spark more bank write-offs. Ambac, which, like its peers, guarantees the payment of interest and principal on securities that it underwrites, risks having to fund hefty claims as debt backed by sub-prime mortgages defaults. The rescue plan is expected to involve Ambac raising $2.5 billion through a rights issue, in which shares are offered to existing investors at a discount to the market price. The consortium, unusually, will backstop the issue by buying any shares that are not sold. A further $500 million would be raised by issuing new debt. Some of the banks in the consortium are thought to share Wall Streetâs concern that Ambac could need far more than an extra $3 billion and are moving to ensure that the rescue does not open them up to unlimited liabilities. Tamara Kravec, an analyst for Banc of America Securities, said: âIs $3 billion enough? Our worst-case scenario puts losses at around $8 billion.â Ambacâs shares rose from $10.71 to $11.59 yesterday after Dresdner became the first consortium bank to back the capital injection publicly. Ambac, which retains its AAA rating with Standard & Poorâs, underwrites $550 billion of debt, including $67 billion of collatoralised debt obligations (CDOs), bundles of bonds and other assets backed by sub-prime mortgages. MBIA, Ambacâs rival, was yesterday notified that it was being sued by the law firm Coughlin Stoia Geller Rudman & Robbins for allegedly issuing false and misleading statements about its exposure to CDOs.
Why are you so interested in bond issurers? Are you shorting their common stocks... Or do you trade bonds?