Post by jeffolie on Nov 6, 2007 17:36:15 GMT -6
$Trillions of bond insurance treated as junk
trillion bond insurance problem
Nov 6 (Reuters) - Bond insurance, a key safety net of the financial system, is looking vulnerable, raising the possibility of another round of forced sales, writedowns and contagion.
Fitch Ratings said on Tuesday that it may cut the AAA ratings of bond insurers after an upcoming review of their exposure to complex collateralized debt obligations.
This matters a lot, because the bond insurance companies, such as Ambac and Financial Guaranty Insurance Company, have insured a collective $2.5 trillion of bonds and structured financings.
If the ratings of one or more of the bond insurers are cut, the rating on the bonds they insure, many of which are municipal bonds, will fall too. This may force some investors who can only hold very secure debt to sell, depressing prices which would already be under pressure due to the lower value of an insurance policy from a lower rated company.
It could also touch off another round of writedowns by banks, insurance companies and others who hold instruments insured by these companies.
It could hit the staid municipal bond market especially hard, as about $1.6 trillion of the bond insurance in force is municipal. The rest is asset-backed debt of various types, including subprime.
Markets, for their part, have voted with their feet on the insurers.
Credit derivative traders have recently valued Ambac and MBIA as deep junk.
www.reuters.com/article/marketsNews/idUKL0620894420071106?rpc=44
Mortgage Mess Mauls Ambac
By Liz Rappaport
Markets Columnist
11/6/2007 5:59 AM EST
Fitch Ratings on Monday called into question the capital reserves at financial guarantors such as Ambac (ABK - Cramer's Take - Stockpickr - Rating), MBIA (MBI - Cramer's Take - Stockpickr - Rating) and Security Capital Assurance (SCA - Cramer's Take - Stockpickr - Rating), along with closely held Financial Guaranty Insurance and CIFG Guaranty.
Fitch's review is due to take four to six weeks. If it cascades into full blown ratings downgrades, it could create another wave of forced selling in the credit markets -- this time in the $14 trillion municipal bond market.
"This will start a chain reaction that will be very difficult to undo," says James Bianco, president of Bianco Research.
Fitch's report notes that Ambac, and SCA are moderately likely "to experience pressure in their capital cushions" due to their CDO exposures. MBIA was deemed a low probability and private companies CIFG Guaranty and FGIC are most likely to suffer, says the ratings agency.
The agency puts forth a remedy, however, and notes that if these firms are deemed at risk of falling below triple-A, they would have one month to raise capital "or execute a risk mitigation strategy," to resume the rating.
The question is how could they raise money given their current toxic status. MBIA and Ambac shares drop continually, but for the occasional short-covering bump. They are off 72% and 54% this year, respectively. SCA is down 70% year to date.
www.thestreet.com/_yahoo/markets/market-angle/10388447.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
trillion bond insurance problem
Nov 6 (Reuters) - Bond insurance, a key safety net of the financial system, is looking vulnerable, raising the possibility of another round of forced sales, writedowns and contagion.
Fitch Ratings said on Tuesday that it may cut the AAA ratings of bond insurers after an upcoming review of their exposure to complex collateralized debt obligations.
This matters a lot, because the bond insurance companies, such as Ambac and Financial Guaranty Insurance Company, have insured a collective $2.5 trillion of bonds and structured financings.
If the ratings of one or more of the bond insurers are cut, the rating on the bonds they insure, many of which are municipal bonds, will fall too. This may force some investors who can only hold very secure debt to sell, depressing prices which would already be under pressure due to the lower value of an insurance policy from a lower rated company.
It could also touch off another round of writedowns by banks, insurance companies and others who hold instruments insured by these companies.
It could hit the staid municipal bond market especially hard, as about $1.6 trillion of the bond insurance in force is municipal. The rest is asset-backed debt of various types, including subprime.
Markets, for their part, have voted with their feet on the insurers.
Credit derivative traders have recently valued Ambac and MBIA as deep junk.
www.reuters.com/article/marketsNews/idUKL0620894420071106?rpc=44
Mortgage Mess Mauls Ambac
By Liz Rappaport
Markets Columnist
11/6/2007 5:59 AM EST
Fitch Ratings on Monday called into question the capital reserves at financial guarantors such as Ambac (ABK - Cramer's Take - Stockpickr - Rating), MBIA (MBI - Cramer's Take - Stockpickr - Rating) and Security Capital Assurance (SCA - Cramer's Take - Stockpickr - Rating), along with closely held Financial Guaranty Insurance and CIFG Guaranty.
Fitch's review is due to take four to six weeks. If it cascades into full blown ratings downgrades, it could create another wave of forced selling in the credit markets -- this time in the $14 trillion municipal bond market.
"This will start a chain reaction that will be very difficult to undo," says James Bianco, president of Bianco Research.
Fitch's report notes that Ambac, and SCA are moderately likely "to experience pressure in their capital cushions" due to their CDO exposures. MBIA was deemed a low probability and private companies CIFG Guaranty and FGIC are most likely to suffer, says the ratings agency.
The agency puts forth a remedy, however, and notes that if these firms are deemed at risk of falling below triple-A, they would have one month to raise capital "or execute a risk mitigation strategy," to resume the rating.
The question is how could they raise money given their current toxic status. MBIA and Ambac shares drop continually, but for the occasional short-covering bump. They are off 72% and 54% this year, respectively. SCA is down 70% year to date.
www.thestreet.com/_yahoo/markets/market-angle/10388447.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA