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HenryTo
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 Posted: Thu Nov 15, 2007 10:18 am Post subject: Bond Insurers |
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This continues to bear watching going forward:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aOjl_Hy9ibBI&refer=exclusive
| Quote: | Insurers could boost their padding by reinsuring the securities they guarantee, Fitch analyst Keith Buckley said on a conference call Nov. 8.
Banks may step in to back the companies because it would be cheaper than taking more writedowns, Michael Barry and Seth Levine, analysts at Charlotte, North Carolina-based Bank of America Corp., wrote in a report.
``The securities industry, no small force, has a keen interest in the financial guarantors remaining healthy and rated AAA,'' they wrote. ``Financial guarantors would not have to look far for help making sure the demand was met.'' |
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rffrydr
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| Posted: Mon Jan 21, 2008 10:19 am Post subject: |
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There's an answer a couple posts down, "neither he nor his wife knows...." He's got the brains but she's got the balls. This is as close to the trading floor an died-in-the-wool actuary wants to get. And he still gets to say he's right.
If what these guys say is true, MBIA is not going into runoff period--and if it did it could self-sustain for 5 years which means even if ALL Merrill's AAA CDOs default it's now got earnings for the next five years minimum and probably more like a decade to come. Well into the next cycle--which means it will also have recoveries on some of that stuff it's being force-fed.
On top of that, looks like it will collect on it's 2Billion hedge against Ambac whose largest shareholder has already guided to runoff.
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HenryTo
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| Posted: Sun Jan 20, 2008 1:57 pm Post subject: |
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Getting an MBA at a top 10 school AND getting your actuarial designation is no laughing matter. I've done both the CFA and the actuarial exams - and I have to conclude that the CFA exams were a cakewalk compared to the actuarial exams, especially on the quant side.
If what he says is true, then combined with his professional bankground in insurance (which would make him a very good analyst in bonds, since evaluating the mortality factor in insurance is very similar to evaluating the default risk in bonds) and his investment banking background, this would make him one of the few stand-alone analysts in the country that is qualified to comment on these bonds - perhaps even more qualified than the guys who underwrote them.
I am, however, a little bit suprised that he would post on a Yahoo message board. Most folks would just stay silent and buy up the bonds in his situation. If he was inviting feedback, he should have just utilizied his contacts from his MBA days - or post on the Motley Fool message board instead of a public board. |
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rffrydr
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| Posted: Sun Jan 20, 2008 1:24 pm Post subject: |
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http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_M/threadview?m=tm&bn=11232&tid=12101&mid=12132&tof=2&rt=2&frt=2&off=1
http://www.bloomberg.com/apps/news?pid=20601039&sid=ai5VXd.5ocFY&refer=columnist_mysak
| Quote: | All About Time
When it comes to the bond insurers, it's all about time.
The insurers are paid a premium upfront, but they only recognize earnings over time, as the bonds they insure mature. Think about it this way: Say the insurer is paid a $100 premium to insure some bonds for 10 years. The insurer has to put the premium aside, and earns only $10 a year.
The exception is if the issuer decides, let's say in three years, to refinance the bonds. Then the insurer can take the big gulp and the remaining $70. This is very simplified, but that's the model.
Remember, too, that the insurers make the regularly scheduled debt-service payments on bonds that default. They don't accelerate payment. If your 10-year bond goes into default, you don't get 100 percent of your money back right away. You get what you are owed over the next 10 years, while the insurer pursues remedies to the default.
They Love It
Is the bond insurance business going to go away?
I don't think so. The new management may decide that certain very profitable lines of business just aren't worth the trouble, but it doesn't look as if municipal bond issuers, underwriters or investors are willing to give up on the product.
Issuers like insurance because it lowers their borrowing costs -- or is supposed to. Whether it actually has in recent weeks, I have my doubts. Investors like insurance because it brings them peace of mind. Underwriters like insurance because it makes municipal bonds, which are particular and specific to a remarkable degree, into a commodity, and so easier to sell.
I kept looking for signs that this would change, but even in the midst of a barrage of bad news, almost half of the number of issues were being insured, and not only by FSA, the only guarantor not tainted by the subprime mess, but also by the ones that were most implicated: Ambac, MBIA and FGIC. The dollar volume that was insured declined a bit, but the number of issues, which usually runs around 50 percent, remained about the same.
It looks like one of the big stories of 2008 may be the survival of the bond insurers |
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rffrydr
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| Posted: Sun Jan 20, 2008 12:46 pm Post subject: |
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Well that is news, very badly needed news:
| Quote: | Moreover, both the debt and equity markets seem to be ignoring the nature of bond insurance. These insurers only guarantee the timely payment of interest and principal over the life of the underlying debt obligations. This means that any future MBIA claims loss, even using the wildly inflated number of $10 billion from a long-time MBIA antagonist, hedge-fund manager Bill Ackman, will be dribbled out over the 20-year -- or in some cases 50-year -- life span of the obligations. Thus, the present value of any claims costs dwindles dramatically in relative significance.
Another favorable sign is that a number of smart value investors have piled into the stock in recent months, albeit at prices three to four times as high as the current trading level. They include Marty Whitman's Third Avenue Fund, Davis Selected Advisers and, most important, private-equity firm Warburg Pincus. The last signed a deal in December under which it will inject $500 million into MBIA later this month by buying 16.1 million shares of its stock at the now blitzed price of 31. Warburg will also backstop a $500 million rights offering that's part of MBIA's $2 billion capital-augmentation program. |
The thing is that trying to save themselves the CDO stuctures are being "accelerated," this without the insurance, supposedly leads to default. But the liabilities are still stretched 20years? If that's the policy then that undercuts this last 300pts down.
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HenryTo
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| Posted: Sun Jan 20, 2008 10:05 am Post subject: |
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Barron's relatively optimistic on MBIA. No doubt Buffett will take over new issuances in the muni market - but for now, the potential bankruptcy/liquidation of MBIA (and subsequent unwinding) looks to be grossly exaggerated.
http://online.barrons.com/article/SB120071150488302379.html?mod=yahoobarrons&ru=yahoo
| Quote: | We can't say that Barron's was surprised by MBIA's fall from grace. We've written skeptical pieces on the company, marveling at its once-elevated stock price and the less-than-candid disclosure policies of its frequently oleaginous management team. Our latest effort ("A Mortgage Meltdown for MBIA?", June 25, 2007), proved prescient in exposing some of its then-ignored subprime exposure. The stock then was trading at 65.
Still, we find the current price levels of its debt, credit-default swaps and, yes, even its stock to be absurdly low. For one thing, MBIA isn't nearly as troubled as Ambac because it has far less exposure to the really-troubled subprime paper. Also MBIA has already completed raising, or locked in commitments for the additional capital demanded last month by Fitch and the other rating agencies. Ambac wasn't so lucky.
Likewise, MBIA's triple-A rating seems to have passed muster with both Fitch and S&P even after the latter ran a new stress-test on its 2006-vintage subprime exposure using the 19% cumulative default rate. MBIA said it's now working closely with Moody's to resolve the agency's concerns. Moody's worries seem to arise more from the uncertainty that exists in the housing market than MBIA's capital levels, according to one third party. Without Ambac competing for new business, MBIA and the other bond-insurer survivors should be able to grow faster and strike more attractive insurance deals.
Moreover, both the debt and equity markets seem to be ignoring the nature of bond insurance. These insurers only guarantee the timely payment of interest and principal over the life of the underlying debt obligations. This means that any future MBIA claims loss, even using the wildly inflated number of $10 billion from a long-time MBIA antagonist, hedge-fund manager Bill Ackman, will be dribbled out over the 20-year -- or in some cases 50-year -- life span of the obligations. Thus, the present value of any claims costs dwindles dramatically in relative significance.
Another favorable sign is that a number of smart value investors have piled into the stock in recent months, albeit at prices three to four times as high as the current trading level. They include Marty Whitman's Third Avenue Fund, Davis Selected Advisers and, most important, private-equity firm Warburg Pincus. The last signed a deal in December under which it will inject $500 million into MBIA later this month by buying 16.1 million shares of its stock at the now blitzed price of 31. Warburg will also backstop a $500 million rights offering that's part of MBIA's $2 billion capital-augmentation program.
Barron's confirmed that Warburg Pincus remains committed to the deal despite the fact that when it closes, it will have lost all but about $130 million of its $500 million investment based on the current stock price.
A Warburg official says it expects to lower its cost basis by participating in the rights offering and taking into the account the value of long-term stock warrants it will be awarded. The firm, he noted, helped recapitalize troubled Mellon Bank in the early 1990s, which produced similar strains prior to a huge return. "We'd love to buy the whole company if we could because of its humongous book of business and profitability even given the less-than-satisfactory business they wrote of late," he said.
Before Warburg cut its deal with MBIA it brought in outside consultants to stress-test the company's portfolio, subjecting it to Armageddon-like housing and other economic assumptions. It found that annual loss expenses -- actual checks written -- came to no more than about $250 million a year under the harshest of conditions.
Balance that against MBIA's assumption, even in run-off, that the company could continue to generate annual revenues of $1.3 billion to $1.4 billion, just from growing net investment income from reserves and other assets; installment premiums from existing customers; investment-management revenues from various funds it runs for municipalities and other customers, and already-collected insurance premiums that get booked into revenues as coverage periods expire.
As a result, some observers claim that, conservatively, the present value of MBIA's liquidation value in run-off is likely to be $30 to $40 a share. If true, it would appear that MBIA has long way to go on the upside, dead or alive. |
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rffrydr
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| Posted: Wed Jan 09, 2008 5:31 pm Post subject: |
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That was indeed the turn today--and shows the shadow secuitization casts.
I'm wondering now however if this doesn't just put more presure on the "monlines" to up the rating, chasing that Moody's et. al. carrot, and liquidate CDO's of which they are a senior partner--burning everyone and everything else in the process.
Buffet has his New York permitting fast tracked and he wants the direct muni market and we all know what he doesn't want--and that's what he's going to get in this deal. That he's making this move more than in part because he want's to do the right, civic, thing is a hopeful sign.
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HenryTo
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rffrydr
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rffrydr
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| Posted: Fri Jan 04, 2008 9:03 am Post subject: |
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And now, the squeeze:
| Quote: | | The cost to borrow for roads and schools is rising as property values drop and consumers cut spending, reducing sales- tax revenue that funds about one-third of state budgets. Thirteen states face cash shortfalls totaling $30 billion next fiscal year, the Center on Budget and Policy Priorities, a Washington research group, said in a Dec. 18 report. |
http://www.bloomberg.com/apps/news?pid=20601087&sid=akCaodXJKTm8&refer=home
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rffrydr
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HenryTo
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| Posted: Thu Dec 20, 2007 9:25 am Post subject: |
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The latest disclosure from MBIA shocks Wall Street:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aiWFuQTJbvvY&refer=home
| Quote: | MBIA posted a document on its Web site late yesterday showing it insured the so-called CDOs-squared, a potentially riskier form of security than what the company typically guarantees. Rising defaults on subprime mortgages packaged into securities have led to bond downgrades and threatened MBIA's AAA guaranty rating.
``We are shocked management withheld this information for as long as it did,'' Ken Zerbe, an analyst with Morgan Stanley in New York, wrote in a report yesterday. ``MBIA simply did not disclose arguably the riskiest parts of its CDO portfolio to investors.'' |
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HenryTo
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| Posted: Wed Dec 19, 2007 10:50 am Post subject: |
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UBS asserts that Moody's "stress test" scenarios are too optimistic:
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Moody's testing bond insurers for 19 pct losses
By Walden Siew
NEW YORK, Dec 17 (Reuters) - Moody's Investors Service said on Monday "unprecedented stress" in the U.S. mortgage market threatens the top ratings for four bond insurers, which the rating company is testing for higher losses.
The rating agency said its "stress tests" that model worst cases now assume 19 percent cumulative losses for mortgages originated in 2006. That compares with Moody's current estimated losses of 11 percent.
Doug Lucas, head of collateralized debt obligation research at UBS AG (UBSN.VX: Quote, Profile, Research), said Moody's "stress case" scenario may underestimate the severity of losses. Moody's scenario matches UBS's current "base case" assumptions, he said.
"Moody's is much more optimistic," Lucas said on Monday. "All these things make you wonder how Moody's is running their analysis of the mortgage bonds and the CDOs that are so big a part of the exposure of these monolines."
The term "monoline" stems from a change in New York state insurance law in the late 1980s, which limited the type of risk that financial guaranty insurers could take on to just one business line -- the insurance of repayment of third-party debt.
Moody's late Friday said it may cut the top "Aaa" ratings of Financial Guaranty Insurance Co (FGIC), partly owned by Blackstone Group (BX.N: Quote, Profile, Research), and XL Capital Assurance Inc (XL.N: Quote, Profile, Research).
Fitch Ratings on Monday also placed its "AAA"-ratings on FGIC under review for downgrade, saying the insurer's capital adequacy falls under that required for its rating by more than $1 billion. For details, see [ID:nN17437568]
Moody's also put a negative outlook on the "Aaa" ratings of MBIA Insurance Corp (MBI.N: Quote, Profile, Research) and CIFG Guaranty, but affirmed the ratings. For details, see [ID:nL17433546].
Concern about the bond insurers' capital adequacy is growing due to their exposure to deteriorating residential mortgages and restructured bonds known as asset-backed security CDOs, Moody's said.
"It's clear that the mortgage-related risk of some financial guarantors has pressured their capitalization levels," said Jack Dorer, a managing director at Moody's. "It is uncertain how long this situation will persist."
As part of its action on Friday, Moody's also affirmed the "Aaa" ratings of Ambac Assurance Corp, Assured Guaranty Corp and Financial Security Assurance Inc, as well as the "Aa3" rating of Radian Asset Assurance (RDN.N: Quote, Profile, Research), all with a stable outlook.
$4 BILLION LOSSES
UBS on Monday said Ambac Financial Group Inc's (ABK.N: Quote, Profile, Research) top-rated insurance arm may suffer $4 billion of credit losses due to its exposure to CDOs and "CDO squared," or CDOs of CDOs.
UBS, which expects Fitch Ratings and Standard & Poor's to make similar rating announcements as soon as this week, also said the bond insurance market may shrink due to losses from the U.S. mortgage and credit crisis.
David Havens, head of investment-grade corporate bond research at UBS, including bond insurers, said the industry may see a "smaller market and fewer players" in the next three to five years. Moody's affirmation of Ambac Assurance's top ratings was the "one big surprise," he said.
"The market was anticipating a more negative outcome for Ambac," Havens said.
Shares of MBIA, the world's largest bond insurer, rose 3.4 percent to close at $28.54 on the New York Stock Exchange, while No. 2 Ambac surged 16.9 percent to end at $26.66. XL Capital's shares rose 1 percent to finish at $53.00 on the Big Board.
MBIA Inc's (MBI.N: Quote, Profile, Research) debt-protection costs rose on Monday, while Ambac Financial Group Inc's fell.
The cost to insure MBIA's debt rose around 30 basis points to around 467 basis points, or $467,000 per year for five years to insure $10 million in debt. Credit default swaps on MBIA Insurance Corp rose around 20 basis points to 225 basis points, according to data by CMA DataVision.
Ambac's debt-protection costs fell 30 basis points to 559 basis points, and credit default swap spreads on its insurance arm, Ambac Assurance Corp, fell 25 basis points to 278 basis points, according to CMA data. (Additional reporting by Anastasija Johnson and Karen Brettell; Editing by Jan Paschal) |
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HenryTo
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Algorithmic Gamma
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| Posted: Thu Nov 22, 2007 9:28 pm Post subject: |
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MBIA... 
Warren Buffet might be the guy to save bond holders!
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rffrydr
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| Posted: Thu Nov 22, 2007 6:17 pm Post subject: |
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The French have an answer:
| Quote: | French Banks Acquire Bond Insurance Company
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By LOUISE STORY
Published: November 23, 2007
Another crack in the subprime mortgage market appeared to have been patched yesterday as two French banks bought out a bond-insurance company that has exposure to the mortgage crisis.
The banks, Groupe Banque Populaire and Groupe Caisse d’Epargne, paid $1.5 billion to take ownership of CIFG Holding from Natixis, a French banking company in which each bank holds a 34 percent share.
The deal is a defensive move meant to preserve CIFG’s AAA rating with Fitch Ratings, Standard & Poor’s and Moody’s. Like all bond insurers, CIFG’s entire business model is based around preserving that rating, and CIFG even uses the rating in its logo.
But CIFG’s rating has been at risk. Fitch and Moody’s put out public warnings this month that they were considering lowering CIFG’s rating. Last summer, Standard & Poor’s announced a negative outlook for CIFG based on its corporate governance.
Yesterday’s deal was developed in “close consultation with the ratings agencies,” said Jacques R. Rolfo, the chief executive of CIFG, in a press release. The statement said the deal had the direct purpose of maintaining the AAA rating.
Fitch responded with a statement yesterday saying that it would hold CIFG at a AAA rating. Moody’s and Standard & Poor’s did not return calls for comment about their intentions. Some of CIFG’s competitors, including the Ambac Financial Corporation and MBIA Inc., may follow CIFG in seeking additional investment to reassure the ratings agencies that they can back the loans they have insured even as the mortgage markets sour.
Companies like CIFG benefited in recent years when mortgage originators like Countrywide Financial and Wells Fargo filled the pipeline with new mortgages — often ones to people with poor credit histories.
CIFG and other bond guarantors insure — or “wrap” in industry parlance — pools of mortgages and other types of debt, like municipal loans. Those pools of debt are rated more favorably based on CIFG’s financial guarantee, and better credit ratings allow institutions to borrow money at a lower cost.
But now the ratings agencies are afraid that CIFG and other insurers may not be able to pay for all possible losses.
As of Oct. 5, CIFG said it had direct exposure to $1.9 billion in residential mortgages. CIFG also insured $9.4 billion in complex bundles of securities called collateralized debt obligations. Just under half the securities backing those C.D.O.’s were backed by subprime mortgage loans.
Most of the residential mortgages that CIFG insured were loans made in 2005, according to CIFG’s Web site.
Yesterday’s sale of 100 percent of CIFG’s capital to the two banks appears a bit like a game of hot potato. CIFG has been a part of Natixis only since 2006, when the two French banks formed Natixis. The banks own about 69 percent of Natixis, and the rest is publicly traded.
CIFG accounted for only 1 percent of Natixis’ net income of $1.48 billion in the first half of this year, according to a financial filing from August.
A spokeswoman from Groupe Banque Populaire said the bank would not comment until after Natixis’s third-quarter earnings were announced Thursday. A spokeswoman from Groupe Caisse d’Epargne hung up when reached.
“We are extremely pleased to have the support of the controlling shareholders of Natixis,” Mr. Rolfo said, referring to the two banks, in the CIFG release.
This is not the first cash infusion CIFG has received this year. In July, Natixis provided $100 million in capital to CIFG.
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