Wednesday, June 4, 2008

Ding Ding...Second Round...Moody's vs. MBIA

Man what a day and it isn't even 1:00 yet. I got in really late last night and was planning to take a short nap. So much for that.

If you haven't seen this that means in the last hour you haven't been following the markets.

The Aaa insurance ratings of MBIA Inc. and Ambac Financial Corp. are again under threat by Moody's Investors Service after the two largest bond insurers reported deepening losses from the mortgage-market slump.


MBIA Insurance Corp.'s insurance financial strength rating may fall to the Aa range, although a drop to the A category is possible, Moody's said in a statement today. Ambac Assurance Corp.'s ranking would probably be lowered to Aa, Moody's said in a separate statement.

Of course the credit default swap markets says it should be rated Caa1 at best. After this Jay Brown came out yelling foul on Moody's. They also said they still have the 900 million at the hold co level. A day after the earnings release, I think it was May 12th, they said they were moving all about 100 million down. Obviously they did not do it. I can't believe the NY Attorney General is not forcing them to move that down.

Probably one of the most important aspects of a downgrade is that it could turn a credit crises (for MBIA) into a liquidity crises (for MBIA) as they would be forced to bring forth more collateral. I read somewhere if S&P cut Lehman again it would require $5 billion more in collateral to be put up by Lehman.

One interesting thing is the markets reaction. It dropped and stopped the advance but for the most part the market has been able to ignore MBIA and ABK. In February it would have sent it down 300 points. The greatest systemic risk these two companies pose has probably has passed as some banks have started taking actions in anticipation of downgrade. More surprising to me is that LEH did not react at all. I figured the short would have been able to gain traction again pushing Lehman down.

I read this comment in the comments section of another blog. I thought it was hilarious.

In other news, Moody's is reviewing its ratings on Confederate war bonds. With negative outlook.

No comments: