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Wednesday, December 19, 2007

S&P Lowers Outlook on Bond Insurers

There was some hope that bond insurers might be able to shore up their balance sheets via reinsurance and/or capital infusions, to avert a downgrade. The pending $1 billion investment by Warburg Pincus in MBIA, the largest monoline insurer, seemed a promising sign for the sector.

The rating agencies are keeping the heat on. Standard & Poors lowered its outlook for MBIA and Ambac. From Bloomberg:

Standard & Poor’s cut its credit outlook on MBIA Inc. and Ambac Financial Group Inc.

MBIA tumbled to the lowest since March 2000 and Ambac posted its biggest drop in a week after S&P cited “worsening expectations” for securities backed by subprime mortgages in cutting its outlook on the two biggest bond insurers. Merrill Lynch & Co., the third-largest U.S. securities firm, dropped on speculation it holds securities insured by ACA Capital Holdings Inc., whose credit rating was cut by S&P. SLM Corp., the largest U.S. education lender, plunged the most ever after saying rising borrowing costs will slow profit growth…..

S&P’s actions today spurred concern that losses tied to delinquencies on subprime home loans may increase. If all the insurers were downgraded, losses may reach $200 billion on securities being insured as some holders are forced to sell because of investment guidelines, according to data compiled by Bloomberg.

More on this topic (What's this?)
It Must Have Been the Egg Nog (Wealth Daily, 12/20/07)
Banks Step In to Shore Up Bond Insurers’ Shaky Ratings (Money Morning, 2/4/08)
Credit crisis hits top bond insurer (Your Financial Future, 12/25/07)
Read more on Monoline bond insurers, MBIA at Wikinvest

Topics: Credit markets

Email This Post Email This Post Posted by Yves Smith at 1:33 pm

4 Comments » Links to this post

4 Comments:

  • Anonymous says:
    December 19, 2007 at 2:40 pm

    “keeping the heat on” …. after they failed to turn on the stove, for years; this is all way to late and implies they were bought off!

  • Yves Smith says:
    December 19, 2007 at 3:05 pm

    Fair point, this is closing the barn door after the horse is gone. We’ve discussed the reluctance of the rating agencies to downgrade the bond insurers due to the nasty knock-on effects, but they should have caught this at an earlier stage.

  • Anonymous says:
    December 19, 2007 at 9:37 pm

    Market players cheered media reports that Japan’s three megabanks are poised to turn down a U.S. request to provide about 5 billion dollars each in lending to a bailout fund that major U.S. banks plan to set up to alleviate the global credit crunch caused by the U.S. subprime mortgage problem.

    “If Japanese banks were to participate in creating the U.S. credit line, they would likely face shareholder lawsuits and cause the subprime fallout to spread in Japan,” Akio Yoshino, chief economist at Societe Generale Asset Management (Japan) Co., said.

  • Anonymous says:
    December 19, 2007 at 11:32 pm

    In the fourth quarter, two Australian companies’ ratings were placed on review for possible downgrade, after incurring higher debt levels for expansion. At present, 20 percent of the rated companies in Australia and New Zealand either face possible downgrade or are on negative outlook, compared with 6 percent with positive trends.

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