So at least one big rating agency, Standard & Poor’s, finally got some nerve and downgraded the two big monolines, MBIA and Ambac . Note that this downgrade applies only to the insurance subsidiary, but that is the critical entity, the one that provides debt guarantees. From Bloomberg:
MBIA Inc. and Ambac Financial Group Inc., the world’s largest bond insurers, had their AAA insurance financial strength rankings cut by Standard & Poor’s.
The ratings were cut two levels to AA, New York-based S&P said in a statement today. S&P said it would keep the ratings under review pending “clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.”
More than $1 trillion of municipal bonds and corporate securities the companies guaranteed depend on those top ratings, as does the capacity for New York-based Ambac and Armonk, New York-based MBIA to generate new business. MBIA Chief Executive Officer Jay Brown and Ambac interim CEO Michael Callen were hired last year largely to help the bond insurers maintain their top ratings in the face of potential losses on collateralized debt obligations and other faltering securities they guaranteed.
Note that Moody’s put the guarantors on review for a downgrade yesterday. With S&P providing air cover. a cut by Moody’s seems a near certainty.