Dateline January 23, 2008
Ambac , MBIA Surge As Bailout Talk Grows Louder

Ambac Financial Group, Inc. (ABK) is now up 57% on reports New York State’s insurance regulators met today with US banks to discuss raising new capital for bond insurers. Ambac rival MBIA Inc. (MBI) is up 30%.

Dateline January 24, 2008
MBIA, Ambac Fall as New York Says Rescue Needs Time

MBIA Inc. and Ambac Financial Group Inc. fell in New York trading as the state’s insurance regulator said a rescue for bond guarantors will “take some time” and analysts cast doubt on the agency’s ability to manage the task.

The meeting convened yesterday in New York lasted about two hours and included some of the world’s largest banks and securities firms, said a person familiar with the gathering, who wasn’t authorized to speak publicly. Among those represented were Goldman Sachs (GS), Merrill Lynch (MER) JPMorgan Chase(JPM), Citigroup (C) and Wachovia (WB).

Dateline January 24, 2008 2:15 PM EST
Bankers Downplay Reports of Bond Insurer Rescue

Bankers who met with New York insurance regulators to discuss a reported bailout of troubled bond insurers downplayed the meeting’s significance Thursday, with one calling it a “non-event.”

Bankers told CNBC that there was no consensus formed at the meeting and no movement on creating substantial plans for a rescue. Moreover, reports of the meeting may have made a bad situation for the industry worse, bankers said, as a subsequent jump in bond insurer stock prices scared off private equity firms that may otherwise have injected capital into the companies.

Dateline January 24, 2008 After Hours Session
Ambac Jumps on Speculation It May Be Bought By Billionaire Ross

Ambac Financial Group Inc., the bond insurer whose shares have plunged 87 percent in a year, rose in extended New York trading on speculation billionaire Wilbur Ross may buy the company.

Ross, who became a billionaire by buying distressed steel and textile businesses, is in talks to buy New York-based Ambac, the Evening Standard reported, citing people it didn’t name. A deal may come within the next two weeks, the newspaper reported on its Web site.

Ambac jumped $1.67, or 15 percent, to $13, after dropping 17 percent in regular trading.

Dateline Jan 25, 2008 (London)
Mortgage bond insurers ‘need $200bn boost’

America’s biggest mortgage bond insurers collectively need a $200 billion (£101 billion) capital injection if they are to maintain their key AAA credit ratings, a figure that dwarfs a plan by New York regulators to put together a capital infusion of up to $15 billion, a leading ratings expert said yesterday.

The failure to maintain their AAA ratings will lead to a further round of multibillion-dollar writedowns among the Wall Street banks and other large owners of the bonds, Sean Egan of Egan Jones Ratings Company, said. It would also push some of them into receivership, Mr Egan added.

Egan Jones makes its money by selling its research to money managers, rather than through fees from the companies it rates.

Mr Egan’s warning comes after the New York Insurance Department, which regulates the state’s insurance industry, held a hastily convened two-hour meeting this week to try to persuade key Wall Street firms to bail out the bond underwriters. The meeting is thought to have been attended by about 25 people, including representatives of Citigroup, JPMorgan, Goldman Sachs and Lehman Brothers, which would be likely to suffer if the bond insurers went under.

Mr Egan has a B-plus rating on MBIA, the biggest bond insurer, which is 13 notches below the AAA-rating it has from S&P;, Moody’s and Fitch.

Eric Dinallo, New York’s insurance superintendent, who is leading the talks with Wall Street, sought to play down the markets’ hopes for the talks yesterday. He said: “It must be understood that these are complicated issues involving a number of parties.”

And So The Saga Continues

  • Ambac and MBIA popped 57% and 30% respectively on a “Non-Event”.
  • Egan Jones, a company that gets paid based on how good its analysis is as opposed to Moody’s Fitch and the S&P; who get paid regardless of how bad their analysis is, claims the monolines collectively need to raise $200 billion to deserve an AAA rating.
  • Clearly AAA or AA ratings on Ambac and MBIA are absurd.
  • It’s Time To Break Up The Credit Rating Cartel.
  • Unless billionaire Wilbur Ross has suddenly lost his marbles he will run, not walk away from this deal.

Addendum:

On January 18th 2008 Bill Ackman wrote a letter to Moody’s and the S&P; regarding the monolines. Here is point #8 of Bill Ackman’s Letter to Rating Agencies Regarding Bond Insurers.

I encourage you to ask yourself the following question while looking at your image in the mirror:

Does a company deserve your highest Triple A rating whose stock price has declined 90%, has cut its dividend, is scrambling to raise capital, completed a partial financing at 14% interest (now trading at a 20% yield one week later), has incurred losses massively in excess of its promised zero-loss expectations wiping out more than half of book value, with Berkshire Hathaway as a new competitor, having lost access to its only liquidity facility, and having concealed material information from the marketplace?

Can this possibly make sense?

Mike “Mish” Shedlock
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