Wednesday, June 04, 2008

Bond Insurers

Another chance for judgment day.

June 4 (Bloomberg) -- Moody's Investors Service placed the Aaa insurance ratings of MBIA Inc. and Ambac Financial Corp. under review for a downgrade for the second time this year after the two largest bond insurers reported wider losses from the mortgage-market slump.

MBIA shares tumbled to the lowest since June 1988, Ambac slumped to a new all-time low and credit-default swaps on their debt rose after Moody's analyst Jack Dorer said a rating cut is ``the most likely outcome'' of the reviews. Dorer cited diminished ``new business prospects and financial flexibility'' and the likelihood for bigger insurance losses.

MBIA Chief Executive Officer Jay Brown rebuked Moody's and said the review is ``unnecessary.'' Ambac CEO Michael Callen said the timing was ``unfortunate'' because the company's problems are temporary. Armonk, New York-based MBIA and Ambac of New York sold a combined $4.1 billion in shares, bonds and convertible debt to bolster capital and save their ratings. With the shares down more than 90 percent in the past year and their debt under review, raising more money may not be possible, analysts said.

``These companies are getting hit from all sides,'' said Robert Haines, an analyst with CreditSights Inc., a bond research firm in New York. They ``aren't writing new business, they're going to have more losses and they can't access the market to replenish capital. How can they be triple-A rated?''

We've been here before. They threaten to downgrade, then they come up with a little bit more capital, threat retracted, rinse, repeat...