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.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAS6o7QliF8U&refer=home
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.
and
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.
Showing posts with label Ambac. Show all posts
Showing posts with label Ambac. Show all posts
Wednesday, June 4, 2008
Wednesday, April 23, 2008
Bear Stearns Affect
What a day. This is the type of day that makes me wonder sometimes if technicals matter more, just how inefficient the market really is, and if computers are dictating trading versus humans. I have said many times that things don't matter in the market until they do. Something will be ignored and ignored and then something out of the blue causes the whole market to focus on it. Today it was ignore Ambac and MBIA.
I am calling this the Bear Stearns Affect. We have moved from panic to complete complacency on the expectation that if things do go bad again the Fed will be there to save us all. This is just stupid and the very moral hazard so many have warned about. I am going to go so far and say the market was flat out wrong today. That is a dangerous statement because the market over time will be right and my analysis could just be wrong. I usually don't care. I take the philosophy that the market is what it is. Either way the price action was just insane. I am not just talking my book. I do not have any exposure to major indexes on the short side. I am short individual securities and a couple of very focused etfs so I really have no skin in the game whether the general market goes up or down since I don't own anything like S&P 500 puts. In my opinion the market and the financials completely ignored one of the biggest news items since Bear Stearns. These two companies are the nuclear trigger that could send the nuclear bombshell throughout our financial system. They are leveraged over 80 to 1. If Bear Stears was scary in the counterparty risk they represented Ambac and MBIA has to be the nightmare of a serial killer in the offices of Wall St. best and brightest.
If that wasn't all stupid enough something more insane came across the wires around 2:30 right before the close.
15:40 ABK AMBAC Fincl: S&P says Q1 results won't result in rating change - Bloomberg (3.29 -2.74) -Update-
I have not seen a news story on this yet. I heard from a day trader friend of mine who sent me a text message that said S&P said that Ambac's earnings were in line with expectations and that S&P would not downgrade Ambac. Ambac's earnings were in line with expectations???? Whose expectations??? The stocks was down 40% plus. Before the S&P news 50%. Does S&P downgrade them if they declare bankruptcy?
Once again I must give a sigh. S&P can't really downgrade them. As ironic as this is they may be one of the few who actually understand what is at stake with downgrading them several notches. We are held hostage by the need to create a mirage of thinking everything is okay so that the market ignores the potential nuclear fallout of Ambac and MBIA potential failure. As I have said time creates optionality and optionality creates more time.
Maybe I am being to cataclysmic with what Ambac and MBIA represent to the market. In February what I was saying the market agreed with. I don't really think anything has changed. The market assumes it all doesn't matter because the Fed will be there. Maybe there right, maybe there right. I think the government is going to have to get somehow involved.
It won't matter until it matters. Maybe that is tomorrow. Maybe next week, maybe when MBIA reports. I don't think we have seen the last of this.
I am calling this the Bear Stearns Affect. We have moved from panic to complete complacency on the expectation that if things do go bad again the Fed will be there to save us all. This is just stupid and the very moral hazard so many have warned about. I am going to go so far and say the market was flat out wrong today. That is a dangerous statement because the market over time will be right and my analysis could just be wrong. I usually don't care. I take the philosophy that the market is what it is. Either way the price action was just insane. I am not just talking my book. I do not have any exposure to major indexes on the short side. I am short individual securities and a couple of very focused etfs so I really have no skin in the game whether the general market goes up or down since I don't own anything like S&P 500 puts. In my opinion the market and the financials completely ignored one of the biggest news items since Bear Stearns. These two companies are the nuclear trigger that could send the nuclear bombshell throughout our financial system. They are leveraged over 80 to 1. If Bear Stears was scary in the counterparty risk they represented Ambac and MBIA has to be the nightmare of a serial killer in the offices of Wall St. best and brightest.
If that wasn't all stupid enough something more insane came across the wires around 2:30 right before the close.
15:40 ABK AMBAC Fincl: S&P says Q1 results won't result in rating change - Bloomberg (3.29 -2.74) -Update-
I have not seen a news story on this yet. I heard from a day trader friend of mine who sent me a text message that said S&P said that Ambac's earnings were in line with expectations and that S&P would not downgrade Ambac. Ambac's earnings were in line with expectations???? Whose expectations??? The stocks was down 40% plus. Before the S&P news 50%. Does S&P downgrade them if they declare bankruptcy?
Once again I must give a sigh. S&P can't really downgrade them. As ironic as this is they may be one of the few who actually understand what is at stake with downgrading them several notches. We are held hostage by the need to create a mirage of thinking everything is okay so that the market ignores the potential nuclear fallout of Ambac and MBIA potential failure. As I have said time creates optionality and optionality creates more time.
Maybe I am being to cataclysmic with what Ambac and MBIA represent to the market. In February what I was saying the market agreed with. I don't really think anything has changed. The market assumes it all doesn't matter because the Fed will be there. Maybe there right, maybe there right. I think the government is going to have to get somehow involved.
It won't matter until it matters. Maybe that is tomorrow. Maybe next week, maybe when MBIA reports. I don't think we have seen the last of this.
Definition of Insane
This has got to be the definition of insane.
http://www.bloomberg.com/apps/news?pid=20601087&sid=am42D9G2zJus&refer=home
`
The first-quarter net loss was $1.66 billion, or $11.69 a share, New York-based Ambac said today in a statement. The company's operating loss of $6.93 a share was more than three times the $1.82 estimated by six analysts surveyed by Bloomberg.
and
Ambac staved off the loss of its AAA rating at Moody's Investors Service and Standard & Poor's by raising $1.5 billion in a March stock sale.
and
The $1.5 billion sale of stock and convertible units nearly tripled Ambac's outstanding common shares to 285 million. The company this week said it's seeking shareholder approval to increase authorized shares to 650 million from 350 million.
Okay let me get this right, they lost another $1.7 billion, five times more than the market expected. They raised $1.5 billion in February so they lost more than they have raised. Wants to almost double there share count which assuming they could get $3 buck a share (bigger discounts occurred at national city) would raise just 900 million. Ambac is down 20% before the open, MBIA down about 10% and the market looks like it will open up!! NOT ONLY THAT, the financials look like they are going to open up!! That in my mind has to be the definition of insane.
One thing to note was that these insures became center stage a few days after Ambac reported earnings in February. There was a delay even though the stock was plummeting. Wall St. unfortunately may start focusing on these guys again. I would love nothing more than some permanent solution to fix these guys so the the systemic risk disappears with the rest of the market and I could become much more aggressive on individual U.S. stocks.
http://www.bloomberg.com/apps/news?pid=20601087&sid=am42D9G2zJus&refer=home
`
The first-quarter net loss was $1.66 billion, or $11.69 a share, New York-based Ambac said today in a statement. The company's operating loss of $6.93 a share was more than three times the $1.82 estimated by six analysts surveyed by Bloomberg.
and
Ambac staved off the loss of its AAA rating at Moody's Investors Service and Standard & Poor's by raising $1.5 billion in a March stock sale.
and
The $1.5 billion sale of stock and convertible units nearly tripled Ambac's outstanding common shares to 285 million. The company this week said it's seeking shareholder approval to increase authorized shares to 650 million from 350 million.
Okay let me get this right, they lost another $1.7 billion, five times more than the market expected. They raised $1.5 billion in February so they lost more than they have raised. Wants to almost double there share count which assuming they could get $3 buck a share (bigger discounts occurred at national city) would raise just 900 million. Ambac is down 20% before the open, MBIA down about 10% and the market looks like it will open up!! NOT ONLY THAT, the financials look like they are going to open up!! That in my mind has to be the definition of insane.
One thing to note was that these insures became center stage a few days after Ambac reported earnings in February. There was a delay even though the stock was plummeting. Wall St. unfortunately may start focusing on these guys again. I would love nothing more than some permanent solution to fix these guys so the the systemic risk disappears with the rest of the market and I could become much more aggressive on individual U.S. stocks.
Friday, January 25, 2008
More MBIA / Ambac News
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3248731.ece
America's biggest mortgage bond insurers collectively need a $200 billion (£101 billion) capital injection if they are to maintain their key AAA credit ratings, a figure that dwarfs a plan by New York regulators to put together a capital infusion of up to $15 billion, a leading ratings expert said yesterday.
http://www.cnbc.com/id/15840232?video=628365512&play=1
Sean Egan of Egan-Jones Ratings Co. talks about the $200 billion number in the video above.
This news combined with the thought the Fed may not cut as much after they were duped and the fact that we had a 6% monstrous rally in the S&P from bottom to top is sending the markets lower.
Like I said, I still don't see how equity holders in these companies get anything back.
America's biggest mortgage bond insurers collectively need a $200 billion (£101 billion) capital injection if they are to maintain their key AAA credit ratings, a figure that dwarfs a plan by New York regulators to put together a capital infusion of up to $15 billion, a leading ratings expert said yesterday.
http://www.cnbc.com/id/15840232?video=628365512&play=1
Sean Egan of Egan-Jones Ratings Co. talks about the $200 billion number in the video above.
This news combined with the thought the Fed may not cut as much after they were duped and the fact that we had a 6% monstrous rally in the S&P from bottom to top is sending the markets lower.
Like I said, I still don't see how equity holders in these companies get anything back.
Wednesday, January 23, 2008
MBIA and ABK
If you have not been following this both bond insures MBIA and ABK are up about 100% in the last two days. A post I did back in December said everything revolved around these guys. I think I am being proven right in that statement as losses accelerated last week after these guys look they were done and huge market gains today after regulators met with their counterparties potentially infusing $5 billion to $15 billion in capital in what amounts to a governement orchestrated bailout.
Couple of thoughts.
1) When in history has a government bailout amounted to anything substantial for equity owners? The 1998 liquidity crises centered around LTCM. That hedge fund blew up and the governement had to come in to lead a bailout (Wall St banks ultimately bailed them out). The point is the owners of LTCM got next to nothing. Same with the S&L crises. The governement came in and huge bailouts. Equity owners got next to nothing. 1930s JP Morgan led huge bailouts, equity owners got next to nothing. Why is this time any different? The market is acting like it is and you shouldn't ignore that information feed. I am just not totally following why.
2) If this is resolved with a bailout we may have reached a bottom in financials. Not screaming from the mountain tops but it is possible. You still have problems with housing, increasing credit card defaults, commericial real estate turning sour, and auto loan problems but what could take the whole finacial system down (the derivative issue) would have a major repair job done.
One more bonus thought just for you.
3) It seems like we went through this about 5 months ago. Remember the SIV bailout with the super SIV fund that went the way of the dodo bird? Well this has all kinds of problems with it. All we know is that they met and options were discussed. I don't know how bad it really is but it could be bad enough that unlike in 1998 this will truly be a governement bailout with still large losses for various financials.
Couple of thoughts.
1) When in history has a government bailout amounted to anything substantial for equity owners? The 1998 liquidity crises centered around LTCM. That hedge fund blew up and the governement had to come in to lead a bailout (Wall St banks ultimately bailed them out). The point is the owners of LTCM got next to nothing. Same with the S&L crises. The governement came in and huge bailouts. Equity owners got next to nothing. 1930s JP Morgan led huge bailouts, equity owners got next to nothing. Why is this time any different? The market is acting like it is and you shouldn't ignore that information feed. I am just not totally following why.
2) If this is resolved with a bailout we may have reached a bottom in financials. Not screaming from the mountain tops but it is possible. You still have problems with housing, increasing credit card defaults, commericial real estate turning sour, and auto loan problems but what could take the whole finacial system down (the derivative issue) would have a major repair job done.
One more bonus thought just for you.
3) It seems like we went through this about 5 months ago. Remember the SIV bailout with the super SIV fund that went the way of the dodo bird? Well this has all kinds of problems with it. All we know is that they met and options were discussed. I don't know how bad it really is but it could be bad enough that unlike in 1998 this will truly be a governement bailout with still large losses for various financials.
Friday, December 21, 2007
Maybe the Business Model is Dead?
I see similar things happening with rating agencies (though I think they will always be around, maybe just in a different form). When the trust breaks down, why do it?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSt9mAsai4Mw&refer=home
State and local borrowers are discovering that buying municipal bond insurance from MBIA Inc. and Ambac Financial Group Inc. is a waste of money.
Wisconsin sold $154.6 million of general obligation bonds last month at interest rates usually available only to borrowers with the highest credit ratings. Wall Street firms didn't require the state to insure the bonds, even though Wisconsin is graded four levels below AAA, amid signs that bond guarantors may lose their own top rankings.
This seems ridiculously low with inflation risk coming but I am not a muni expert.
When Wisconsin sold $154.6 million of bonds for highways, public buildings and water improvements on Nov. 15, it paid a yield of 3.87 percent for debt due in 2016.
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