Wednesday, January 23, 2008

The Success of These Efforts Is Key

Banks, New York Regulator Meet on Bond Insurer Rescue (Update3)

By Erik Holm and Jesse Westbrook
Jan. 23 (Bloomberg) -- New York State's insurance regulators met today with U.S. banks to discuss raising new capital for bond insurers, said a department spokesman.

Talks in New York with the unnamed banks are part of Insurance Superintendent Eric Dinallo's effort to stabilize the bond guarantors and bolster the market's finances, said agency spokesman Andrew Mais in an interview. Insurers MBIA Inc. gained 33 percent in New York trading and Ambac Financial Group Inc. soared 72 percent.

New capital may help preserve the top credit ratings for the bond guarantors such as MBIA, the industry's largest, and halt any erosion of investor confidence in the $2.4 trillion of assets they guarantee. Ambac, MBIA's biggest rival, lost its AAA grade from Fitch Ratings this month on concerns that losses tied to subprime mortgages may increase.

``The market is obviously viewing it as positive news,'' said Kathleen Shanley, an analyst with bond research firm Gimme Credit LLC in Chicago. ``Shareholders and holding company creditors should keep in mind, however, that the insurance department's primary mandate is to protect policyholders, not to boost the share price.''
Ambac and MBIA have suffered losses because of guarantees they sold for structured investments such as collateralized debt obligations backed by mortgages. The industry collectively guaranteed $127 billion of CDOs linked to mortgages that were given to borrowers with poor credit.

The securities have plunged in value as defaults by borrowers soared to a record in the third quarter of last year, according to the Mortgage Bankers Association.


moishe's alter ego hyman said...

No joke, this is a huge and very important. im glad morty agreed and to illustrate showed holier then thou sean pean up in there.
but for real, this will stabilize the bond insurance market and hold off a fire sale if some of these bonds lost their AAA rating.

Morty said...

Hyman! Good to see (hear? read?) you! Yeah, I just thought the photo was funny, but my headline was serious. This is great news and we saw the markets eat it up - they can see the light at the end of the tunnel now. Did you or Moishe see Kudlow last night? I thought his head might explode with glee...