Although we have been skeptical of the bond insurer rescue efforts led by New York state insurance superintendent Eric Dinallo, a report today by Bloomberg claimed progress was being made with the monoline insurer deemed most in need of assistance, Ambac.
From Bloomberg:
New York Insurance Superintendent Eric Dinallo is trying to organize a bank-led rescue of Ambac Financial Group Inc. to prevent downgrades of the bond insurer that may roil credit markets, according to two people briefed on the plan.
Dinallo has organized a group of eight banks including Citigroup Inc. and UBS AG to provide financing, said one of the people, who declined to be identified because the details haven’t been completed.
“While we cannot discuss specifics, there are a number of developments relating to the bond insurers,” Dinallo said in a statement today. “We are continuing to communicate with all parties to help them reach firm deals as soon as possible.” Ambac spokesman Peter Poillon didn’t return calls seeking comment.
Fitch Ratings stripped Ambac, the second-largest bond insurer, of its AAA rating last month, casting doubt on the company’s guarantees on about $556 billion of municipal and structured finance debt. Standard & Poor’s and Moody’s Investors Service Inc. are reviewing their top ratings on the New York- based company. Reductions would lead to asset writedowns for banks that depend on the insurers for coverage of securities.
Ambac climbed $1.51, or 13 percent, to $13.15 at 2:39 p.m. in New York Stock Exchange composite trading. The company has declined more than 80 percent in the past 12 months.
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There was an interesting interview today on CNBC with one of the principals of Egan Jones, the private ratings firm. Gasparino was on as well and made an interesting point. He said that S & P and Moodys were telling the municipal insurers for the last several years that they NEEDED to get into the structured finance business, to MAINTAIN their AAA rating, and that a prospective entrant into the business was told that to GET a AAA they would need to participate. While this is so far only heresay, Gasparino has done some good reporting
in the past based on apparently good connections.
Not hearsay – it happened in Oct/Nov 2005 or thereabouts. The prospective entrant was a financial guarantor being established by DEPFA, an Irish bank with German links that was recently acquired by Hypo Real Estate. CEO was Michael Freed.
Moody’s Investors Service cut credit ratings of XL Capital Ltd.’s insurance subsidiaries, partly because of the company’s connection with fifth-largest bond insurer Security Capital Assurance Ltd., whose credit rating is on watch for downgrade.
Moody’s downgraded ratings of XL’s insurance units, including XL Insurance (Bermuda) Ltd. and XL Re Ltd., one notch to A1 from Aa3. It also cut XL Capital’s senior debt rating Baa1 from A3. The outlook on the ratings is now stable.
rk and reality-based lawyer,
That is an unbelievable bit of information. One can only presume that the logic was that they were seeing a profit squeeze in the muni guarantee business, but nevertheless, this has to rate as one of the worst bits of advice in financial history. And it wasn’t even advice, since the rating agencies held the whip hand.
This is simply a variation of the failed M-LEC Super SIV scam model in its design and intent. Get together the most needy participants, have them self fund a cash pool in order to inject capital into a market where none currently exists, and provide a self-funded prop with themselves as the primary beneficiaries. ?? what the??
Hmm… lets see. Parent company sets up 100% owned subsidiary company. Subsidary company sells goods to parent company. Subsidiary records transaction as revenues. Parent company records great consolidated revenues.
C’mon people, see this for what it is.
Ambac HIgher Priority of Dinallo’s Resuce Effort; Progress Claimed
Rescue.
I listened to the interview mentioned — it is available on-line.