• 07 Feb 2008 at 10:34 AM
  • MBIA

Bond Insurer Bailout Failing Fast

The odds for an industry-wide bailout of bond insurers are getting very long. A senior investment banker familiar with the bailout discussions tells DealBreaker that many of those involved have concluded that any bailout would be “unwise, unnecessary or ineffective.”
‘There’s been a real loss of faith in the idea of a coordinated rescue,” he said.
Even if the bankers and regulators were to eventually come to a consensus on the bailout, it is likely to come too late to save insurers from downgrades. This is why MBIA, the company whose fate has been at the center of the bailout negotiations, has now moved to sell $750 million of stock. It is not at all confident that help is coming soon.
Meanwhile, pressure is mounting at the ratings agencies to downgrade the bond insurers. As more reports emerge about the bailout failing, holding off on downgrades becomes less attractive. The ratings agencies are very aware that the widespread impression that they are holding back on downgrades is further tarnishing their already dimmed credibility.
In another sign of trouble for the bond insurers, prominent banking heads have been talking about how well positioned they are to deal with a ratings downgrade. Today both JP Morgan Chase’s Jamie Dimon and Deutchebank’s Josef Ackerman went out of their way to talk about how their banks are well prepared for a downgrade. This high level talk of the effects of a downgrade of bond insurers indicates that there is little confidence an effective rescue plan can be put into place. And the reassurances that downgrades will not cause major turmoil is a sign that many senior bankers do not feel an urgent need to organize a bailout.

  • 06 Feb 2008 at 10:16 AM
  • Ambac

Buyback To Oblivion: MBIA and Ambac

“So, in the name of enhancing shareholder value, Ambac and MBIA respectively spent $1,015,036,000 and $1,843,044,000 worth of cash for stock buybacks (over the past seven years). But, and now you know this, such cash expenditures reduced liquidity and net worth by those exact amounts. How can this be deemed responsible behavior when both companies are expressly in the business of insuring bonds and providing financial guarantees?” asks Eric Englund.

The more we think about the tremendous bounce in MBIA’s share price yesterday the less we like it. It bothered us so much yesterday that we spent plenty of time going back through the slides and our notes from the endless conference call trying to decide what could possibly have persuaded the markets that Warburg Pincus and MBIA were right about this while Pershing Capital and Meredith Whitney were totally wrong. It was like unspooling at roll of endless tape. We were tempted to buy into Felix Salmon’s thesis that MBIA executives had bored investors into being persuaded.
In the end, we concluded that it’s just the same old error of “well, at least we now know how bad it is” that emerges every time financial company announces credit market derived losses. We’re now on round three or four of this process, and every time it happens we hear a chorus of voices telling us that the latest announcement discloses losses that are so deep that they must represent the entirety. In fact, we’re starting to wonder if careful traders, especially options traders, haven’t started to rely on this effect for their trading—buy before the disclosure, wait for post announcement run-up, then sell.
We hate to second guess markets. It’s arrogant and even solipsistic. Just because we think something matters doesn’t mean the market will eventually come around to our way of thinking. We’re sure it’s just some kind of analytic blindness that has made us distrustful of MBIA’s internal risk assumptions. They were wrong before! Could they really be wrong twice in a row! They control acceleration—and seem totally willing to control it all the way out of the business of insurance by refusing to accelerate when it is obviously called for. But somehow that won’t drive away customers! They live in a land where they hung the jerk who invented work and paddle canoes on lakes of stew and whiskey too.
They blamed “unjustified fearmongering” and “distortions” for their stock’s decline. (Don’t ask about what the specific distortions were, please.) No-one has ever done that before. They are wisdom in action!

  • 09 Jan 2008 at 11:25 AM
  • MBIA

What Good Is Bond Insurance Anyway?

The word this morning that MBIA would have to cut its dividend in order to preserve it’s credit rating has us asking how valuable bond insurance is when its coming from firms whose own financial position may be shaky.
More after the jump.

Read more »

  • 05 Dec 2007 at 1:11 PM
  • MBIA

MBIA Crash & Burn

Just when you thought it couldn’t get worse at MBIA, it gets worse. After losing half its market cap in the past few months, MBIA looked to many like a good buy. There are a lot fewer members of that club of “many” today. Shares are down nearly 9% right now, apparently on word of a negative report from Moody’s.
Moody is saying: “with regard to MBIA, additional analysis of its direct RMBS portfolio leads Moody’s to believe the guarantor is at greater risk of exhibiting a capital shortfall than previously communicated; we now consider this somewhat likely.”