Further confirmation of the lack of integrity in the markets comes via the desperate and pathetic measures of the monoline insurers.
First, a Bloomberg story tells us that MBIA has asked Fitch to quit rating some of its insurance units because it thinks its grading scale is too harsh.
Gee, the whole point of a rating is that it is supposed to be objective. But no, MBIA wants to limit itself to craven ratings agencies (let’s face it, they were all under tremendous pressure not to downgrade the monolines. Fitch stuck to its guns; S&P and Moody’s used the fig leaf of likely-to-be-inadequate capital-raisings to capitulate while in their fantasy, maintaining their honor).
Fitch doesn’t have to comply, and if I were them, I wouldn’t. The more they stand apart from Moody’s and S&P, the better they look.
From Bloomberg:
The bond insurer MBIA Inc., which is facing a downgrade, asked Fitch Ratings on Friday to stop issuing credit ratings on its insurance units.
MBIA said that it had requested that Fitch withdraw its ratings on units including the AAA-rated MBIA Insurance Corporation.
Fitch is the only top credit rating company that continues to consider a downgrade of MBIA’s rating. Moody’s Investors Service and Standard & Poor’s both affirmed the company last week….
A spokesman, Willard Hill, said that MBIA disagreed with Fitch’s model for capital allocation. He did not know whether Fitch planned to comply with its request. “This is something we have been evaluating for a long time,” Mr. Hill said.
Fitch says that MBIA should have more capital than required by S.& P. and Moody’s to support the asset-backed securities it guarantees, Mr. Hill said. That is “incompatible” with MBIA’s plans to separate the company’s businesses in the next five years, he said.
Second, Ambac continues in what looks an awful lot like manipulation. Recall that we had the specter, twice, of CNBC announcing rumors of Ambac’s progress with bailout talks within a half an hour of the close of trading.
These rumors turned out to be inaccurate, but they served to lead to a big rally in the shares (with a large short interest, any move upwards will lead to a lot of covering).
Note that this is already highly suspicious. When NYSE companies have announcements during the trading day, they are supposed to call a trading halt. But the leak was done in a manner that seems designed to inflict maximum pain on the shorts.
Why is it probable that Ambac was behind the leaks? Because, unlike the Treasury’s failed SIV rescue effort, the monoline bailout negotiation have had very few unauthorized comments. Remember, you have an M&A shop running the process, Perella Weinberg, and people from that discipline take confidentiality very seriously. At a minimum, after the initial leak, there should have been a search for the guilty and sufficiently stern warnings so as to prevent a second leak.
Today, it appears that Ambac painted the tape. Investors placed trades in the minute before the close to goose the stock price reported for the day (Thornberg did so as well):
Shares in Ambac and the mortgage lender Thornburg Mortgage surged Friday after investors traded blocks of at least 10 million shares in the week’s final minute, according to Bloomberg data.
The transactions multiplied Ambac’s 4-cent gain for the day into a $2.08 increase, closing at $9.50, and turned a 24 percent drop for Thornburg into an 8.5 percent rally. The stocks rose on orders submitted by investors instructing brokerage firms to trade at least 10 million shares as near to the end of the day as possible, according to exchange data compiled by Bloomberg.
While there did not appear to be any news to send Ambac higher, “people think something’s going on because the print went up so high,” said Joseph Saluzzi, the co-head of equity trading at Themis Trading in Chatham, N.J. “It doesn’t look like it’s a keypunch error since it was such a large block.”
Further indication that these trades were designed to goose the stock price? Ambac’s price fell sharply in after-market trading. From MarketWatch:
Shares of Ambac Financial slumped more than 13% in after-hours trading Friday, after the struggling bond insurer raised $1.5 billion in a share offering to help it protect its crucial triple-A credit rating. Shares of Ambac fell to $8.25 in late trading
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The whole market is designed to be goosed by multiple players now, like The Fed and rating agencies, while SEC and audits and accounting are out the window.
Also, Re: The more they stand apart from Moody’s and S&P, the better they look.
If rating companies survive, it will depend on having integrity and not playing games like this. In reality, would you rather have a stock or bond rated by a game playing, political casino/mafia, or a company that seems on the level which is being hard nosed? MCO and S&P are devaluing and diluting their future value and decreasing future market share, which is just plain bad business! Boo!
I don’t get it. What benefit is there for any company in bumping up the price of the stock for such a short time? I can’t think of anything gained if it all comes back off the next day.
They want the shorts to burn their fingers repeatedly and give up and go short someone else. When it comes to the health of the bond insurers, perceptions matter more than reality, and a “healthy” stock price is prerequisite to maintaining that perception. Gotta keep it out of penny stock territory at all costs.
Think about it: if banks were willing to seriously consider investing a few billion into Ambac to forestall having to do even larger writedowns, why not toss a mere trifling throwaway $10 million or so into a hit-and-run short squeeze, even if it was a dead loss?
It’s worth a shot from their point of view, even if it probably won’t work, because the other side can surely figure out a way to profit from predictable yo-yo volatility. And who knows? Maybe naive retail investors will buy into it at some point and start pushing the price up.
The whole bond insurer rescue drama playing out over the past few months has been an exercise in grasping at straws. What’s one more straw?
Expect the next shoe to drop at option expiry time if not sooner.
Man! If I was Fitch’s CEO, I’d be delighted.