BAILOUT? - New York Insurance Superintendent watching bond insurers, may intervene

Interesting commentary by Morningstar on Bloomberg re: bond insurers. Say that bond insurers could survive under AA until capital is built up from premiums to regain AAA.

If this is the path that bond insurers took it would put them @ direct odds with banks and other holders of rated bonds as well as potential suitors who would be looking to pick up assets @ fire sale prices.

As more downgrades would be forethcoming for the bond insurers the outcome would be massive dumping by entities that are required to hold AAA paper only. Many institutions including banks and brokers would be forced to take massive writeoffs(as recent article estimated @ 22bil-174 bil depending on the rating that bond insurers can maintain).

The end result being that the market would be exposed to further downside pressure for the forseeable future.

This might be an outcome unacceptable to insurance regulators who have said they would take action to protect bond holders.

Will the government step in?
Will someone step in and add capital to regain AAA?

what a tangled web...
 
Quote from Cdntrader:

Interesting commentary by Morningstar on Bloomberg re: bond insurers. Say that bond insurers could survive under AA until capital is built up from premiums to regain AAA.
More...

ackman makes the point that these premiums are likely to disapear since they a lot of them are from structure finance deals. he's reasoning

": (1) when structured finance obligations default, accelerate, or otherwise prepay ahead of schedule
these premiums disappear, (2) purchasers of secondary market guarantees are likely to terminate their periodic premium payments because of the deteriorating credit quality of the bond insurers, (3) the reserves for losses on these exposures (for example 12% of premium for MBIA) have proven to be inadequate and therefore overstate the net premium income, and (4) there is no provision for overhead, remediation, legal or other costs required for the bond insurers to run their business going forward. There is also no mechanism whereby the bond insurers can borrow against these potential future premiums to be used to pay claims in the present day."

I believe in a run off scenario mbia is going to $0. my worries as short is an acquisition by someone who buys what the management says
 
Quote from Daal:

ackman makes the point that these premiums are likely to disapear since they a lot of them are from structure finance deals. he's reasoning

": (1) when structured finance obligations default, accelerate, or otherwise prepay ahead of schedule
these premiums disappear, (2) purchasers of secondary market guarantees are likely to terminate their periodic premium payments because of the deteriorating credit quality of the bond insurers, (3) the reserves for losses on these exposures (for example 12% of premium for MBIA) have proven to be inadequate and therefore overstate the net premium income, and (4) there is no provision for overhead, remediation, legal or other costs required for the bond insurers to run their business going forward. There is also no mechanism whereby the bond insurers can borrow against these potential future premiums to be used to pay claims in the present day."

I believe in a run off scenario mbia is going to $0. my worries as short is an acquisition by someone who buys what the management says
More...

The thing is the shareholders are running the show and can (for the moment) drag this out. Time is now against the shorts here since ABK called the rating agencies bluff.

I don't like the stocks either way here. To me the broader implications for the market are of interest.
 
ambac ceo said 'there are a lot of uncertainty on a run-off scenario' so he's skeptical of decision. i think thats his hint for another point ackman makes that is the losses by the rating agencies are calculated on a after tax basis so no income for ambac on run off and all the sudden their losses will have a bigger impact. i feel sorry for citi shareholders, they will get diluted even more
 
Quote from Daal:

ambac ceo said 'there are a lot of uncertainty on a run-off scenario' so he's skeptical of decision. i think thats his hint for another point ackman makes that is the losses by the rating agencies are calculated on a after tax basis so no income for ambac on run off and all the sudden their losses will have a bigger impact. i feel sorry for citi shareholders, they will get diluted even more
More...

Fast Money says word on street is Ross not buying ABK.

http://www.cnbc.com/id/22842499/?__source=yahoo|headline|quote|text|&par=yahoo
 
NY regulator hires Perella for bond insurers
Mon Jan 28, 2008 3:05pm EST

The New York State Insurance Department has hired Perella Weinberg Partners to advise on bond insurers, a spokesman for the department said on Monday.

Bond insurers, who guarantee more than $1 trillion of securities, have suffered writedowns of bonds and derivatives linked to subprime mortgages. Last week, New York State Insurance Superintendent Eric Dinallo met with banks to encourage them to put up cash to support bond insurers.
 
NY regulator, banks eye individual guarantor fixes


Mon Jan 28, 2008 4:12pm EST NEW YORK, Jan 28 (Reuters) -

Banks and the New York State Insurance Department are more likely to look for individual fixes for ailing U.S. bond insurers than an industry-wide bailout, a person briefed on the matter said on Monday.

Sources last week said New York State Insurance Superintendent Eric Dinallo had pressed banks to put up cash to rescue bond insurers, whose expected losses from securities linked to subprime mortgages have mounted.

But at this point, the more likely solution is to selectively sort out problem companies, the person briefed on the matter said. (Reporting by Dan Wilchins; Editing by Tim Dobbyn)
 
Nah, Hank Paulson will make some of those "Mister, you're just not getting it" and "you need to be a patriot/team player" 'phone calls
 
You must log in or register to reply here.
Back
Top