Monoline dominoes - who falls when

Discussion in 'Wall St. News' started by ASusilovic, Jan 21, 2008.

  1. In a credit note sent out to clients on Friday, RBS started to outline what it thought was on the horizon for the monolines:

    From a rating perspective, in the absence of a bail-out, we see the agencies as more likely to downgrade than not, and once the first downgrade has gone through (likely Fitch with respect to SCA next week), it will become much easier for the other agencies to follow suit with other monolines. We now expect the future for the monolines to play out as follows. Fitch will likely downgrade SCA next week, and FGIC and Ambac the following week - assuming it sticks to its own six week deadline. Moody’s will follow in due course with downgrades to Ambac, MBIA, FGIC and SCA, and S&P will downgrade FGIC. The damage the downgrades of other agencies will do to these monolines is likely to prompt the others to downgrade as well. In theory, these downgrades will be to the double-A category, based on the comments of the agencies so far.

    Snaps on the wires also reported Ambac was scrapping its plans to raise $1bn in capital:
    *AMBAC WON’T RAISE EQUITY CAPITAL UNDER CURRENT MARKET CONDITIONS

    *AMBAC PLANS TO CONTINUE TO EVALUATE ALTERNATIVES

    Which presumably will accelerate downgrades. Unless Ambac has something up its sleeve - like a government organised bailout.

    According to Bloomberg, the CDS market is currently attaching a 70 per cent chance of bankrupcty to both MBIA and Ambac.

    And yet, shares in Ambac rose 18 per cent in early trade.

    http://ftalphaville.ft.com/blog/2008/01/18/10295/monoline-dominoes-who-falls-when/