Moody’s to Cut Ambac, MBIA AAA Rating

Looks like trouble for the monline duolines. Barring any further capital raise means a AA rating is inevitable:

The world’s largest bond insurers said they won’t raise
capital after New York-based Moody’s said yesterday that the most
likely result of its examination would be a downgrade of the
companies’ insurance financial strength rankings.    

Moody’s originally put Ambac and MBIA under review in
January, only to affirm the ratings of MBIA a month later and
Ambac in March. The credit rating company cited "meaningful
uncertainty” about Ambac’s ability to regain market share since
the first reviews, and "diminished new business prospects” for
MBIA in yesterday’s announcement.    

Floyd Norris says No Kidding: "Has anyone thought in recent months that either of those insurers deserved its AAA rating?"

Update: June 5, 2008 3:55pm
Its official:

S&P cuts ratings on MBIA, Ambac   

Credit ratings agency Standard & Poor’s said Thursday it cut the
financial strength rating on bond insurers MBIA and Ambac Financial
Group to "AA" from "AAA," a day after Moody’s said it was considering
doing the same thing.

S&P said it cut the crucial ratings because the pair face a decline
in new business and financial flexibility. Fitch Ratings has already
downgraded both MBIA and Ambac to "AA."

>

Sources:
MBIA, Ambac May Quit Aaa Battle on Moody’s Likely Cut
Christine Richard and Jody Shenn   
Bloomberg, June 5 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGtCIF41PLkI&

No Kidding
Floyd Norris
NYT, June 4, 2008,  6:42 pm
http://norris.blogs.nytimes.com/2008/06/04/no-kidding/

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What's been said:

Discussions found on the web:
  1. Steve Barry commented on Jun 5

    So Barry, what are the ramifications? We all know it is coming.

    A little look at the dollar:

    a weaker dollar Y/Y added about 8% to foreign revenue in 4Q07…11% in 1Q08 and I estimate about 11% in 2Q. It is flattening out and I project 3Q it will be up only 8% and 4Q rough guess up 4%. If dollar does rally, it could turn negative in 6 months.

  2. stuart commented on Jun 5

    Looking at the dollar, no one really seems to care anymore about this. Pump monkeys out there jawboning are firmly in control and have most convinced that all is well in Oz.

  3. Jim Haygood commented on Jun 5

    From the Bloomberg article: “MBIA insured more than $1 trillion of debt as of Dec. 31, according to the company. Ambac insured $524 billion of bonds as of April.”

    Okay, call it $1.5 trillion. If 10% of those bonds default without insurance, that’s $150 billion down the drain. But if that $150 billion is being used as regulatory capital or margin deposits by leveraged entities, and can’t be replaced under current market conditions, it could provoke the liquidation sale of much larger amounts of assets.

    Probably the ensuing mess will be used as a pretext for the federal government to muscle in on the states’ turf, and take over insurance regulation after the horses have escaped from the barn. As for replacing the lost capital, the federal government is still triple-A rated, and interest rates are still low. But for how long?

  4. awp commented on Jun 5

    What will come first? Ambac’s bankruptcy, or a downgrade from AAA?

    This is so pathetic.

  5. Jim Haygood commented on Jun 5

    Well, ABK, MBI, and the BKX banking index are all UP on the news.

    Ha ha ha! We laugh at danger, as we charge bare-chested into the blazing machine guns! Ben Bernanke’s magic shield will protect us!

  6. Jim Haygood commented on Jun 5

    Well, ABK, MBI, and the BKX banking index are all UP on the news.

    Ha ha ha! We laugh at danger, as we charge bare-chested into the blazing machine guns! Ben Bernanke’s magic shield will protect us!

  7. Jim Haygood commented on Jun 5

    Well, ABK, MBI, and the BKX banking index are all UP on the news.

    Ha ha ha! We laugh at danger, as we charge bare-chested into the blazing machine guns! Ben Bernanke’s magic shield will protect us!

  8. Jim Haygood commented on Jun 5

    Well, ABK, MBI, and the BKX banking index are all UP on the news.

    Ha ha ha! We laugh at danger, as we charge bare-chested into the blazing machine guns! Ben Bernanke’s magic shield will protect us!

  9. Risk Averse Alert commented on Jun 5

    Seems a natural progression in the slow motion unwind of the post-Bretton Woods financial system. The fraud of private sector self-regulation appears all the more exposed.

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