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Wednesday, February 27, 2008

Surprise! Investors Don’t Buy MBIA AAA Rating

Bloomberg tells us that the credit default swaps market does not see MBIA as anything remotely resembling an AAA:

Moody’s Investors Service and Standard & Poor’s say MBIA Inc. has enough capital to withstand losses and justify its AAA rating. MBIA’s debt investors aren’t so convinced.

Credit-default swaps indicating the risk that Armonk, New York-based MBIA’s bond insurance unit won’t be able to meet its obligations are trading at similar levels to companies such as homebuilder Pulte Homes Inc., which is rated 10 steps lower….

“Pardon me if I find this a little hard to believe,” said Richard Larkin, director of research at municipal-bond brokerage Herbert J. Sims & Co. in Iselin, New Jersey. “This is basically the same management that put MBIA into this hole in the first place.”

For the record, Pulte is rated BB+, which is junk.

More on this topic (What's this?)
MBIA CEO "Resigns" (Wealth Daily, 2/19/08)
MBIA's Strange Behavior (Eyal Bar's Blog, 3/7/08)
Marty Whitman on MBIA and Radian (Cheap Stocks, 1/26/08)
Read more on MBIA, Credit Ratings Agencies at Wikinvest

Topics: Credit markets

Email This Post Email This Post Posted by Yves Smith at 2:59 am

9 Comments » Links to this post

9 Comments:

  • Jojo says:
    February 27, 2008 at 5:51 am

    But “Quis custodiet ipsos custodes?”????

  • Anonymous says:
    February 27, 2008 at 7:27 am

    In the end, people (officers at Moody’s) are going to jail.

  • Francois says:
    February 27, 2008 at 9:37 am

    “Pardon me if I find this a little hard to believe”

    Is that pseudo-WallStreet lingo for “Are you f*cking kidding me?”

  • doctor holiday says:
    February 27, 2008 at 11:30 am

    Re: For the record, Pulte is rated BB+, which is junk.

    Falsified ratings and synthetic manipulation coupled to false and mis-leading information will result in people looking for new benchmarks and thus to re-define fundamental valuations. The markets are highly inefficient with tainted ratings and data, thus one has to wonder who will support or sustain this type of anomaly which benefits a small minority of corrupt participants!

  • Now Im worried says:
    February 27, 2008 at 2:05 pm

    I’ve been looking at the credit crisis events as a struggle between the regulators who want to protect the IBs (esp. Goldman) from bankruptcy and the regulators who want to protect the core of the banking system — though not necessarily all the money center banks (i.e. the Fed).

    We were heading towards a collapse of the CDS market which would clear out a bunch of IBs and leave the FDIC to take over a couple of big banks. I would guess this is the Fed’s preference since they’re probably pissed off at the casual expectation of a bailout on the part of the IBs and likely believe that only the banking system needs a bailout.

    But the IBs, faced with well-deserved imminent bankruptcy prefer to wage war on the government, than to be proactive about determining which members of their club are in a position to survive the crisis and take over the business of their dead competitors. They ditched their market making role in munis in a no holds barred effort to force the government to bail out the IBs. With the result that somebody (Paulson?) was able to lean on the rating agencies to maintain the fiction, despite the fact that Spitzer (and others?) were clearly pushing them to just get it over with.

    Now I’m worried.

  • Anonymous says:
    February 27, 2008 at 2:20 pm

    This isn’t about Goldman and the other IBs — it is about Citi and maybe a few other banks.

    Even if the re-caps of the monolines are insufficient for long-term retention of AAA ratings, why can’t the capital injections be sufficient to maintain AAA for a few more months, or at least until after the election?

    What do you suppose would be the political ramification if there was a Northern Rock-style event with Citi prior to Nov 08? Now replay that hypothetical scenario in 1Q09. Which feels better?

    Another justification for the delay tactic is the hope that things just might get better, even if that has not been a good strategy in the last 12 mos.

  • now im worried says:
    February 27, 2008 at 2:36 pm

    “Even if the re-caps of the monolines are insufficient for long-term retention of AAA ratings, why can’t the capital injections be sufficient to maintain AAA for a few more months, or at least until after the election?”

    Does this make any sense? Once the monolines lose their triple A, their business model is dead. If you acknowledge that they will deserve to lose AAA in ten months, how can you claim that it makes sense for them to retain it today?

  • foesskewered says:
    February 27, 2008 at 8:26 pm

    Wouldn’t say Goldman has completely escaped all problems, the splitting of the monoliners and consequent (almost certain) downgrading of the non-muni side is likely to impact on the VIE portion of Goldman’s business, at least that’s what a bloomberg article is proposing

    Frankly, the ratings agency move not to downgrade has merely discredited them further (both monoliners and ratings agency) -makes you wonder what are they smoking?!

  • Anonymous says:
    February 27, 2008 at 10:59 pm

    Mish has a entry up that the monolines are AAA while Phizer has been downgraded.

    Interesting comparison.

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