Bloomberg is reporting MBIA, Ambac Credit Ratings Under Threat at Moody’s.

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.

MBIA, which had plunged 90 percent in the past year, dropped $1.06, or 16 percent, to $5.63 today in New York Stock Exchange composite trading. Ambac, down 97 percent in the past year, fell 51 cents, or 17 percent, to $2.49.

I agree with Ambac and MBIA

I agree with MBIA (MBI). The review is indeed unnecessary. The market has spoken long ago. It’s far too late for Moody’s to salvage any integrity from the downgrade. At this point why bother?

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I also agree with Ambac (ABK) CEO Michael Callen who said the problems are temporary. Indeed they are. Ambac shares will likely be worthless soon enough as it heads into the ashheap of history. With bankruptcy, it’s problems will be over.

The fact that Moody’s is finally willing to take action says that all the big players are finally positioned to be able to handle it. Barring a last minute bailout from Buffett (unlikely) these companies are burnt toast.

Mike “Mish” Shedlock
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