Bond Insurers

[HenryTo]

This continues to bear watching going forward:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aOjl_Hy9ibBI&refer=exclusive

[rffrydr]

MBIA's current observations:

http://seekingalpha.com/article/104388-five-key-quotes-from-mbia-on-the-monoline-industry?source=feed
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

These have already recieved generous concessions from the Insurance Commissioner and stand to be profitable in runoff.

What, are they going to sue themselves back into business? The trust as been broken; they're very function questioned. Arthur Anderson is the template here.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Bond insurers back in the spotlight:
-----------------------------------------------------------------------------------
Bond insurers post big losses
Wednesday November 5, 8:13 am ET

NEW YORK (Reuters) - Bond insurers MBIA Inc (NYSE:MBI - News) and Ambac Financial Group (NYSE:ABK - News) reported large third-quarter losses on Wednesday, hurt by further writedowns and limited new business.

The companies have been hit hard by the credit crunch and have lost their AAA ratings after posting billions of dollars of losses from exposure to mortgages and complex debt instruments.

They have been seeking a way to tap into the government's $700 billion bailout plan for the financial sector as the downgrades and shaky global credit markets have limited their chances for writing new business. It is not yet clear if they will have access to government funds.

Ambac, in particular, the smaller of the two companies, has struggled to continue writing insurance as its credit rating has been downgraded.

Ambac posted a third-quarter operating loss of $7.81 per share, much wider than analysts' average loss forecast of 90 cents, according to Reuters Estimates.

The company said it had $2.7 billion of unrealized losses on credit derivatives contracts in the quarter.

It said a further rating downgrade warning in September had led it to postpone plans to capitalize a new company dedicated to insuring municipal bonds. It had hoped this business, an area that was its bread-and-butter before it strayed into covering more exotic debt, would help it revive its fortunes.

MBIA said it increased reserves in the third quarter by $961 million related to certain residential mortgage guarantees, reflecting an increase in delinquencies and a higher level of assumed future losses.

The company also said it had launched legal action against several loan servicers on past transactions that did not meet eligibility criteria for MBIA-insured transactions.

MBIA's third-quarter net loss widened to $806.5 million, or $3.48 a share, from $36.6 million, or 30 cents a share, a year earlier.

Ambac's net loss widened to $2.4 billion, or $8.45 a share, from $360.6 million, or $3.53 a share, a year earlier.

Ambac shares fell 25.5 percent to $2.53 in premarket trading after closing up 10.4 percent at $3.40 on Tuesday.

MBIA shares closed 15 percent higher at $10.46 on Tuesday and were unchanged in premarket trading.

[rffrydr]

Short interest still registering at over a third of float despite making the list. Oct 2 deadline?


Defaults spiking into next year according to Dresdner (courtesy Alphaville)


Insolvencies to peak in 2009
We expect corporate insolvencies to rise sharply, with the peak in 2009. UK plc has held up surprisingly well so far, with corporate bad debts lower in H1 2008 than we had expected. But insolvencies show strong historical relationships with both GDP growth and the corporate debt service burden, neither of which looks healthy. Insolvencies set to rise – the only question is by how much

Corporate insolvencies have shown a strong correlation with two macro indicators, namely GDP growth and the corporate debt service burden. Both of those are now looking decidedly worse than they have for a long time, suggesting that we could see around 20,000 insolvencies next year, which would be 60% up on last year’s number although still about 17% lower than the peak in 1991.
PM:
GDP growth correlation suggests a peak of nearly 19,000 insolvencies next year In terms of the relationship with GDP growth, the correlation over 25 years is best with GDP growth lagged by three quarters, giving an r-squared of 62%. Using our economists’ forecasts, we can use the historical correlation to show the likely path for insolvencies. The lowest quarterly year-on-year growth number forecast by our economists is negative 0.1% for Q1 2009 versus the low in Q2 1991 of negative 2.1%. That means that we would not expect to see such severe insolvencies as in the early 1990s, but excluding that period it is likely to be the worst that we have seen since records began (1975). The actual number for next year comes out at 18,900, which would be 50% higher than the 12,500 seen last year but about 20% below the 24,000 in 1992. Interestingly, this exercise also suggests that insolvencies should peak in the second quarter of 2010, following the forecast low point for GDP growth three quarters earlier. This, we think, means that 2009 would likely be the worst year for banks’ credit quality. That fits with the historical precedent (see table below).
PM:
Debt service burden relationship suggests a similar outcome
There is a much greater lag in the relationship between the debt service burden and insolvencies. The correlation is greatest (r-squared 65%) when subjecting the debt service burden to a lag of 18 months. Unlike the GDP growth correlation, this relationship suggests that insolvencies have been
much lower than would have been expected over the past few years. The chart shows not only the actual corporate insolvencies reported, but what this regression would have predicted for the past couple of years. This model again suggests that the annual peak in insolvencies will come in 2009, although the quarterly peak should appear in Q1 next year. The total predicted number for next year is 20,600, which is 64% higher than last year but 14% lower than in 1992. We have rolled forward the debt service burden by assuming 1.5% corporate debt growth per quarter and interest rates falling next year to 4% as per our economists’ forecasts. It is this fall in interest rates that drives the earlier quarterly peak than the GDP growth model.
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Despite that short interest MBI down today on (yes) Moody's downgrade. Echoes of the trauma? Can we look at this now as a "technicality"? Can we buy?
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

MBI 37% short.


http://shortsqueeze.com/?symbol=mbi&submit=Short+Quote%99
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

MBIA intends to follow up on Dinallo's editorial and is now thinking of suing Bill Ackman and Pershing Square:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aA7VaI4A4oBI&refer=home

[HenryTo]

Eric Dinallo - superintendent of the New York State Insurance Department - essentially saying to Bill Ackmann: "We will prosecute you unless you stop appearing on TV and claim the bond insurers are insolvent":

http://www.ft.com/cms/s/0/1b447e24-5f10-11dd-91c0-000077b07658.html

Folks like Ackmann either never learned from the 1930s experience or prefer publicity and his day under the spotlight as opposed to making money for his clients. The regulators are going to find scrape goats, and they are not going to be the folks running MBIA or Ambac.

[rffrydr]

Out of writeoffs will come the first writeups:

http://www.bloomberg.com/apps/news?pid=20601087&sid=au5CisS.1gDs&refer=home
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

I'm sympathetic but Mr. Brown protests too much. I like the monolines once their runoff status is acknowledged. These technicalities make a convenient refuge for the fiddle player; outside his world smolders.

The trust is gone; the very concept of insurance looses its meaning. Where is their business? The Madman spoke truth here.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Tom Brown vs. Whitney Tilson re: bond insurers, Part II:

http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=5152&ArticleTypeID=2

[HenryTo]

Wilbur Ross on the bond insurers. Says downgrades were expectable and should survive, but don't expect them to get back to triple-A ratings. Also says that they're now effectively in runoff mode, and that he expects he will invest more in the financial services sector going forward:

http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vbck241ZRekg.asf&vCat=/av&RND=666364566

[HenryTo]

Moody's cuts ratings on Ambac and MBIA by one notch. Note that if these two entites are cut to single-A, then we're looking at an additional $100 billion in writed-downs at the very least.
-----------------------------------------------------------------------------------
Moody's cuts ratings on bond insurers Ambac, MBIA
Thursday June 19, 6:57 pm ET

Moody's Investors Service cuts ratings on bond insurers Ambac, MBIA; outlook is negative

NEW YORK (AP) -- Moody's Investors Service said Thursday it cut its ratings on Ambac Financial Group Inc. and MBIA Inc. amid ongoing concerns about the bond insurers' financial health.
The rating house cut the insurance financial strength ratings for Ambac Assurance Corp. and Ambac Assurance UK Ltd. to "Aa3" from "Aaa," and for MBIA Insurance Corp. to "A2" from "Aaa."

In addition, Moody's downgraded Ambac's senior unsecured debt to "A3" from "Aa3." It lowered the surplus note rating for MBIA Insurance to "Baa1" from "Aa2," and the senior debt for MBIA to "Baa2" from "Aa3."

All the ratings remain investment grade.

The downgrades follow a review of the insurers started June 4, and reflect challenges with both companies' "financial flexibility" and expectations that losses from bonds they insure will continue to mount, Moody's said.

In response, New York-based Ambac said in a statement it was disappointed with the downgrade and the negative outlook.

"The companys strong capital base, even under Moodys stress-case scenarios, will allow it to manage through the current credit crisis" Ambac said in a prepared statement. "Moreover, we are actively managing our portfolio and expect to see concrete positive results from our remediation efforts."

It added the downgrade "should not have any material impact on its obligations to collateralize its guaranteed investment contracts and the swaps in its financial services segment."

Moody's said the ratings outlook for both companies is "negative," suggesting additional downgrades are possible.

[rffrydr]

View from the other side:

The Reality Behind the Ambac and MBIA Downgrades

By Tom Graff

[HenryTo]

The cost of capital for both MBIA and Ambac has become debilitating. CDS contracts are now implying a D rating, but again, a AA rating is the most likely scenario from either Moody's or S&P:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0mTLMWbzREA&refer=home