tag:blogger.com,1999:blog-6798074091942701235.post8511595946014855273..comments2024-03-27T11:08:31.557-04:00Comments on Can Turtles Fly?: Berkshire Hathaway Enters the Bond Insurance MarketSivaram Vhttp://www.blogger.com/profile/06361276466660862882noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-6798074091942701235.post-79256391016666046392008-10-16T09:55:00.000-04:002008-10-16T09:55:00.000-04:00Keep up the good work.Keep up the good work.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-25163708148566974552008-01-02T13:40:00.000-05:002008-01-02T13:40:00.000-05:00Cak, I appreciate you posting references to those ...Cak, I appreciate you posting references to those articles. Keep posting. They are helpful to me--and others I'm sure.Sivaram Vhttps://www.blogger.com/profile/06361276466660862882noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-10068983333180750102007-12-31T14:13:00.000-05:002007-12-31T14:13:00.000-05:00Siv-You might find this interesting vis a vis dilu...Siv-<BR/><BR/>You might find this interesting vis a vis dilution. I wish I was smart enough to get a firm grasp - too many New Year's have ravaged my brain cells.<BR/><BR/><BR/><A HREF="http://www.utexas.edu/law/academics/centers/clbe/assets/Atanasov.pdf" REL="nofollow"> RightsDilution</A>cakhttps://www.blogger.com/profile/08156778168786135341noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-73772254638165955802007-12-31T11:48:00.000-05:002007-12-31T11:48:00.000-05:00Sorry to inundate you with so much material but, i...Sorry to inundate you with so much material but, incredibly, here is a positive take on the business<BR/><BR/><A HREF="http://blog.bondbuyer.com/bondbuyer/entry/20071226" REL="nofollow">BondBuyer</A>cakhttps://www.blogger.com/profile/08156778168786135341noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-41151492176018287302007-12-31T11:40:00.000-05:002007-12-31T11:40:00.000-05:00Siv-I posted this over on AI's blog - a new articl...Siv-<BR/><BR/>I posted this over on AI's blog - a new article from Reggie Middleton. It almost appears as a challenge to AI, considering the timing. <BR/><BR/>It's a rather shrill blog, continuing his all out assault on the ratings agencies<BR/><BR/><A HREF="http://seekingalpha.com/article/58676-moody-s-affirms-ambac-mbia-ratings-losing-any-last-shred-of-credibilty" REL="nofollow">ReggieMiddleton</A>cakhttps://www.blogger.com/profile/08156778168786135341noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-39808925351426756222007-12-29T19:33:00.000-05:002007-12-29T19:33:00.000-05:00Cak, good thoughts. Martin Whitman certainly made ...Cak, good thoughts. Martin Whitman certainly made some unusual comments. I'm also kind of puzzled by him saying that a rights offering is non-dilutive. If you are willing to put in more money--and Whitman will--then it may not be dilutive but for any other shareholder it will be extremely dilutive.<BR/><BR/>I also find it interesting that he says that stock offering or rights offering is the best. This seems bizarre--again, unless you are willing to put more money into the business--given that preferred share offering or buying reinsurance is generally cheaper. However, it is quite possible that the cost of a preferred share offering or buying reinsurance may have gone up significantly in the last few months and a stock offering may be cheaper.<BR/><BR/>The most powerful comment from Whitman, at least for the bulls, is his view that even if a company like MBIA winds down its operations, it is still a positive investment.<BR/><BR/><BR/>Ambac needs to raise $1 billion and I'm expecting a big rights offering, along with a stock sale. Something similar to what MBIA did is what I'm expecting. Shouldn't be too hard to get some distress fund or a value-investing-type fund to pony up some of the money (not to mention foreign money in Asia or Middle East)...Sivaram Vhttps://www.blogger.com/profile/06361276466660862882noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-20199374262902128132007-12-29T16:01:00.000-05:002007-12-29T16:01:00.000-05:00"Interestingly, he didn't say anything about Ambac..."Interestingly, he didn't say anything about Ambac so does this mean he doesn't think it is as good as, say, MBIA?"<BR/><BR/>I'm going to play Pollyana here and say maybe Whitman thinks Ambac is NOT as bad as MBI or RDN (ha ha), and maybe doesn't qualify as a distress play.<BR/><BR/>Or maybe back in the 3rd qtr, with the general view being that MBI was in better shape than ABK (you mentioned that also) Whitman thought MBI was the smarter play.<BR/>Maybe he's looking at ABK now.<BR/><BR/>Actually, what I think turned Whitman's head to MBI was the Warburg deal. He talks about the 500 mill rights offering and its moderately dilutive effect. I guess that is huge for someone like Whitman who is obsessed with book valuations, although Im somewhat confused about dilutive vs. non-dilutive relative to a rights offering. <BR/><BR/>I wonder if AMBAC has a plan mirroring MBI? Hopefully, we'll know soon - Fitch has pretty much set the calendar.cakhttps://www.blogger.com/profile/08156778168786135341noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-4453916431499082372007-12-29T15:29:00.001-05:002007-12-29T15:29:00.001-05:00You make a very interesting observation with respe...You make a very interesting observation with respect to structured products. For now, and most likely, for as long as he is alive, Buffett will not touch the stuff, preferring to charge premium rates to insure top tier municipals.<BR/><BR/>Per Bloomberg, "Bonds sold by state governments make up about 33 percent of the insurance premiums collected by MBIA, the biggest of the monolines, and 50 percent of revenue for No. 2, Ambac."<BR/><BR/>So, obviously, ABK & MBI made major moves AWAY from the muni business (and into the the stuff that is killing them now) in an effort to grow. <BR/><BR/>So, in light of the current meltdown, does this spell the end of structured product coverage? Or will it make it that much more necessary (just as the stifling default of Washington Power in 1984 enhanced the value of having muni insurance)?<BR/><BR/>While there has been current talk critiquing the usefulness of muni insurance, can the same be said of structured stuff? It was interesting to read Buffet's comment about the bond insurers "mis-pricing of risk". He never said MBI, ABK, etc were wrong to enter the arena (ABK did its first ABS transaction in 1994), just that they didn't charge enough at the front door.<BR/><BR/>It would seem, that if the market for non-muni insurance is viable,<BR/>a strong player who does know how to "price the risk" will make an awful lot of money?<BR/><BR/>I went onto Ambac's website and checked out their history. They've been thru some bumpy roads before.<BR/>What is interesting is that it took them 8 years from their founding in 1971 to garner a AAA rating from <BR/>S+P. In 1983, their parent company Baldwin United went bankrupt. Then, in 1984, they get hammered by losses in WHOOPS bonds, almost go under, but get bailed out by (of all folks) Citicorp.cakhttps://www.blogger.com/profile/08156778168786135341noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-59970450860924704552007-12-29T15:29:00.000-05:002007-12-29T15:29:00.000-05:00Thanks for the Whitman link cak. It came out earli...Thanks for the Whitman link cak. It came out earlier than I thought and it contains good information. I'll write up a post later.<BR/><BR/>Interestingly, he didn't say anything about Ambac so does this mean he doesn't think it is as good as, say, MBIA? <BR/><BR/>I also wonder if betting on multiple bond insurers may be preferable to betting on one. Martin Whitman is clearly betting on the industry rather than anyone specific.Sivaram Vhttps://www.blogger.com/profile/06361276466660862882noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-91856920465723610102007-12-29T13:24:00.000-05:002007-12-29T13:24:00.000-05:00Yeah... let's just hope that Ambac understood what...Yeah... let's just hope that Ambac understood what they were doing better than the competition. They clearly have the higher CDO exposure. <BR/><BR/>One thing that I like about Ambac is that they are far more transparent than the competition. The fact that they were willing to detail their exposure to the questionable stuff gives me greater confidence. This doesn't mean that they won't sink but if they do, they would have done so holding their heads high. <BR/><BR/>Berkshire Assurance is going to be very small. The way they are pricing things (premium price for premium guarantee) also likely will keep their market small. Unless Buffett changes their strategy in the future, they look to be the Louis Vuitton Moet Hennessy of bond insurance. It'll be quite interesting to see how this plays out. <BR/><BR/>If they charge a premium rate, does that mean that they will attract the riskier bond issuers or does it mean they will attract the larger bond issuers?Sivaram Vhttps://www.blogger.com/profile/06361276466660862882noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-43534710869615004062007-12-29T13:19:00.000-05:002007-12-29T13:19:00.000-05:00Hey SIV -Happy New Year. I hope you make a ton!I d...Hey SIV -<BR/><BR/>Happy New Year. I hope you make a ton!<BR/><BR/>I don't know if you've seen this from Marty Whitman, explaining his reasoning behind Third Ave's recent investments in MBI and RDN.<BR/>This is the Value Funds 4th qtr report dtd 10/31, 07. He goes quite in depth, and is a good read.<BR/><BR/><A HREF="http://www.thirdavenuefunds.com/taf/documents/shareholderletters/aboutus-letters-07Q4.pdf" REL="nofollow">Marty Whitman</A> <BR/><BR/>If link is no good, access Third Ave Funds/Mutual Funds/shareholder letters/Value Fundcakhttps://www.blogger.com/profile/08156778168786135341noreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-76353725951716924592007-12-28T15:37:00.000-05:002007-12-28T15:37:00.000-05:00Well, they certainly have the name recognition and...Well, they certainly have the name recognition and financial backings. I don't know if it is that easy to do this well. Judging from the superficial and third hand data, even among the existing companies, some are better than others. I got a feeling that ABK got a lot better deals out of the CDOs compared to MBI. In the end, one must bow to competitive pressures. If that is the only business you do, you either price the products right or stop doing business. The underlying expertise of the team is not that easy to replicate. <BR/><BR/>JohnAnonymousnoreply@blogger.com