MBIA and Ambac: Watch Out Next Week

Quote from Mvic:

http://online.barrons.com/article/SB120071150488302379.html

Before Warburg cut its deal with MBIA it brought in outside consultants to stress-test the company's portfolio, subjecting it to Armageddon-like housing and other economic assumptions. It found that annual loss expenses -- actual checks written -- came to no more than about $250 million a year under the harshest of conditions.
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there is one more thing. this huge revenues are going to the Insurance subsidiary, when you buy the stock you buy the holding company. By now Eric Dinnalo from the NYID isnt likely to allow the insurance subsidiary send money to the holding company. at the same time the holding company is already drawing down on its cash.
If their on balance sheet SIV Global One goes into trouble and is unable to roll over their commercial paper(there is some evidence this is already happening)
they will use even more cash and might be insolvent. ackman estimates the most the holding company can survive without cash from the insurance subsidiary is to the end of 08, less if the SIV goes into trouble
 
Quote from Daal:

there is one more thing. this huge revenues are going to the Insurance subsidiary, when you buy the stock you buy the holding company. By now Eric Dinnalo from the NYID isnt likely to allow the insurance subsidiary send money to the holding company. at the same time the holding company is already drawing down on its cash.
If their on balance sheet SIV Global One goes into trouble and is unable to roll over their commercial paper(there is some evidence this is already happening)
they will use even more cash and might be insolvent. ackman estimates the most the holding company can survive without cash from the insurance subsidiary is to the end of 08, less if the SIV goes into trouble
More...

Good points Daal. The more I look in to this whole mess the more it looks to me that the US Gov doing something like this is the only way to restore faith in the credit markets

http://online.wsj.com/article/SB120085762367003651.htm

Then there will have to be some regulation to ensure minimumn standards which will also promote the use of the securitization market.

As much as I would like the market to sort this all out I think that it is so deep, complex, and the amounts involved so large that it would make having let LTCM fail look like a minor blip. In the long run it could even translate to an opportunity to make US markets even more attractive to the rest of the world.

I would usually advocate for the market to sort things out and for people to take their losses, the problem here is that it would send the US debt market back to the stone ages and that would be tremedously detrimental to US and gloabl growth for a decade at least. Not something any of us want.
 
It will be interesting to see how Ambac impacts the markets tomorrow.

Do they drive the last nail in the coffin?

Look at who's getting hurt today. The insurers are big losers. They stand to get really hurt if the bond insurers go up in smoke. Think of all the securities they hold which will now be marked down in credit quality and in price.
 
Quote from plugger:

It will be interesting to see how Ambac impacts the markets tomorrow.

Do they drive the last nail in the coffin?

Look at who's getting hurt today. The insurers are big losers. They stand to get really hurt if the bond insurers go up in smoke. Think of all the securities they hold which will now be marked down in credit quality and in price.
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Which insurers are getting hurt today?
 
"In the insurance sector, Germany’s Allianz was down 8.9 per cent to €121.29, Swiss Re fell 9.7 per cent to SFr69, France’s Axa shed 8.8 per cent to €22.43, while ING, the Dutch group, fell 10.5 per cent to SFr20.99."

mbi and ambac should gap down pretty good if there is no fed or bailout
 
I cant find a fundamental change on their problems after today.

the fed cut, barron said mbi is a buy, ambac released a huge hit to its book value(this will scare some value guys away) none of this help them but the stocks surely liked, +40%.
the most I had seen it squeeze was 20% on the warburg pincus deal

ambac said is talking with 'interested parties' since they wont raise equity that can only mean issuance of debt, normal debt is not considered capital so it will be probably 'surplus notes', mbia raised money at 14%, now they are downgraded and have all this publicity they would probably need 30% to attract money, plus these surplus notes reduce recovery of common stockholders in the event of liquidation
 
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