Wednesday, January 9, 2008 3 comments ++[ CLICK TO COMMENT ]++

Ugly Day for the Bond Insurers...and for Countrywide As Well

Well, this is probably a week that bond insurers, not to mention Countrywide shareholders, would want to forget. The trading today is very bearish, with most of them down around 10% (on top of the 15% decline yesterday):



Countrywide is likely dragging down the monolines along with it. A lot of the products insured by the monolines are from Countrywide Financial (although that in and of itself doesn't mean that the bond insurers are going to suffer).

MBIA announced a $1 billion capital injection plan (issuance of subordinated debt-like notes) and said it will cut dividends (dividend cuts don't help much because they pay out very little). SEC and the New York Insurance Department also initiated informal investigations of MBIA's deal with Warburg Pincus. I'm not really sure what all this means but quite often the government is always behind and tries to make itself visible during crises well-after-the-fact.

Although I picked a bad time to invest, I'm not too concerned with the stock price performance of Ambac. It doesn't really impact much EXCEPT for the fact that raising capital will be more costly if the stock price doesn't hold up.

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3 Response to Ugly Day for the Bond Insurers...and for Countrywide As Well

Neanderthal
January 9, 2008 at 2:28 PM

Looks like abk will have to do debt issuance similar to MBI since stock issuing would be difficult given that the market cap of the company is at 1.6 bil and falling, but I think they should not have problem with it given that the debt from MBI was rated AA by the rating agency.

John

cak
January 9, 2008 at 3:00 PM

CNBC had an interesting, albeit brief, conversation with Ajit Jain, head(?) of Berkshire's new insurance unit.

AjitJain

cak
January 9, 2008 at 3:29 PM

Buffett's Bond Insurer May Invest in Existing Company (Update1)

By Josh P. Hamilton

Jan. 9 (Bloomberg) -- Warren Buffett's Berkshire Hathaway Inc. may invest in other municipal bond insurers after launching a competing company last month.

``We're looking at multiple ways to participate in the industry,'' Ajit Jain, head of Berkshire's new bond insurer, said today in an interview. Berkshire, based in Omaha, Nebraska, is ``looking at ways to support the existing insurers in terms of reinsurance and capital,'' he said.

Berkshire Hathaway Assurance Corp. is challenging bond insurers such as Armonk, New York-based MBIA Inc. and New York- based Ambac Financial Group Inc. The two largest existing firms are struggling to retain the AAA credit ratings that give them the financial credibility to guarantee bonds issued by state and local governments.

The Berkshire unit got its first state license, from New York, on Dec. 28, and Jain has said he plans to be in the top municipal bond markets, including California and Florida. The company will insure only municipal bonds, and Berkshire has a triple-A rating and more than $40 billion in cash.

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