Ambac Downgraded by Fitch

From Bloomberg:

Ambac Financial Group Inc. became the first bond insurer to lose its AAA rating after Fitch Ratings downgraded the company.

Ambac Assurance Corp.’s ranking was lowered two levels to AA and may be reduced further, New York-based Fitch said today in a statement.

The downgrade “reflects the significant uncertainty with respect to the company’s franchise, business model and strategic direction.”

Ambac the second-largest bond insurer, dropped to $6.23 in New York Stock Exchange trading after earlier trading as high as $7.18. The New York-based company today abandoned plans to raise $1 billion in capital after a 70 percent plunge in its shares in the past two days.

Moody’s Investors Service and Standard & Poor’s, the two largest ratings companies, are also reviewing Ambac’s ratings for a possible reduction.

Without its AAA rating Ambac may be unable to write the top- ranked bond insurance that makes up 74 percent of its revenue. Ambac may have to stop making insurance or sell itself, said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York.

Ambac insures about $556 billion in municipal and structured finance debt.

FT Alphaville provided a prognosis from RBS:

From a rating perspective, in the absence of a bail-out, we see the agencies as more likely to downgrade than not, and once the first downgrade has gone through (likely Fitch with respect to SCA next week), it will become much easier for the other agencies to follow suit with other monolines. We now expect the future for the monolines to play out as follows. Fitch will likely downgrade SCA next week, and FGIC and Ambac the following week – assuming it sticks to its own six week deadline. Moody’s will follow in due course with downgrades to Ambac, MBIA, FGIC and SCA, and S&P will downgrade FGIC. The damage the downgrades of other agencies will do to these monolines is likely to prompt the others to downgrade as well. In theory, these downgrades will be to the double-A category, based on the comments of the agencies so far.

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  1. doc holiday

    Its worth time to look at unusual SEC reports related to why these types of stories are in the news (these days), then to go a step further and understand more about the nature of full disclosure and the chicanery that is being spun. If this seems too abstract, realize full well the devil is in the details and that we have a great deal of devils out there obfuscating reality by offer illusionary stimulus packages and suggesting that there “may” be a slowdown in the economy!

    Take a look at things like this:

    Distribution and Pool Performance Information

    On September 10, 2007 a revision was made to the May 25, 2007 distribution which was made to holders of Morgan Stanley Mortgage Loan Trust 2007-3XS. The reason for this amendment is after providing Wells Fargo their report, the Servicer revised their reporting. Wells Fargo has since had a formal discussion with the Servicer on appropriate methods of revising data. Only due dates were affected by this revision.

    The revised distribution report is attached as an Exhibit to this Form 10-D/A. Please see Item 9(b), Exhibit 99.1 for the related information. Please refer to MSM 2007-3XS: efc7-0688_email424b5.txt for an explanation of material terms, parties and abbreviations used in Exhibit 99.1.

    >> What we have all been party to during the Bush Coup, has been tantamount to financial anarchy (perhaps terrorism or treason).

    These daily losses that are compounding are driving America towards a systemic crisis that may not have a solution, because every financial model currently in place is flawed and thus there is nothing available to understand what is happening; this is chaos at an early stage, where the chickens at The Fed are running in circles and hitting walls, as if there is a path through the maze they engineered; there is nowhere to go and the only solution is to let the plague run its own course and then count the dead.

    Need another example of the contagion? edga…7e_jan08pds.txt

    EXHIBIT 99.1

    Series 2007-E

  2. doc holiday

    Damn that link, just trust me…ok, its really there if you look for it, I didnt make it up, yah gotta believe me…Im beggn yahs…..Im on thin ice and I dont this shi- man,

    Ok, ok, as a bonus, here is this as a counter to that flawed link:

    The downgrade likely means Ambac will not underwrite any more business, said John Flahive, director of fixed income for BNY Mellon Wealth Management. Market prices of existing bonds insured by Ambac and MBIA Inc. were trading lower before the downgrade, and Flahive suggested any downgrade could accelerate the decline.

    Ambac and chief competitor MBIA together insure $700 billion in municipal bonds, and MBIA’s “AAA” rating is also under threat.

    Ok, me again (here) with this comment: Underwriters are pissing me off by immingling non-verified collateral into toxic packages that are being used to fuel derivatives, which will become more and more worthless, as the bogus colateral is exposed during this period of falling dominos, which is not in the previous models that used variables that di not express this current and future condition of insolvency.

    Furthermore, since it is Friday, try this link to a great story:

    From the beginning, the bank failed to document loans properly. In addition, it based repayment
    on collateral value rather than on the ability of the borrower to repay, and collateral
    documentation deficiencies were common.

    Thats some good stuff and Im giving it to you free, for a limited time only, so check it out dude!

    Sorry about the first link, this one should work, but these are very uncertain times:

  3. Anonymous

    I think these monolines go into run off mode from next week onwards. There is only value left to shareholders in such a condition. Yes, policy holders such as th investment banks and insurance companies get impacted, but these companies are run for the benefit of shareholders. Only regulatory intervention can prevent a run off now. But even such intervention is unlikely to keep these businesses afloat. Buffett must be very pleased with himself. Oh, a thought, perhaps he could buy the muni part of these businesses and allow the banks capitalize the CDO insurance part…. would the investment banks want to commit such capital for up to 40 years? Better to write down the losses in 2008 than make a bad investment that has a lifespan of 40 years.

  4. Yves Smith

    Anon of 10:56 PM,

    Actually, there may be a bit of justice here. If the companies go into run-off, the shareholders are certain to be toast.

    The shareholders are at the holding company level. The insurance ops are in regulated subsidiaries. They are permitted to dividend cash up to the holding company under very strict rules (dim recollection here, but I think it’s only 10% of statutory profit unless otherwise approved by the regulators). Clearly no profits, and clearly no other reason for the authorities to let the subs pass cash to the holding cos. They will run out of dough.

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