Warren Buffett said on CNBC this morning that his company, Berkshire Hathaway (NYSE: BRK.A) has offered to help bond insurers on the brink by offering a second level of insurance -- up to $800 billion -- on municipal bonds.
Buffett said he he made the offer to Ambac (NYSE: ABK), MBIA (NYSE: MBI) and FGIC.
The move will certainly put some wind in the sails of bulls who have taken a beat on Ambac and MBIA, but before you get too excited, consider that the Associated Press is reporting that the offer would only back municipal bonds and not other risky and complicated financial instruments.
Municipal bonds make up about two-thirds of the insurance industry's portfolio, with asset-backed securities making up the other third. But the asset-backed securities are probably the bigger concern.
It will be interesting to see if William Ackman, who has been vocally bearish on the industry for a long time, will have any comments on Buffett's offer.
Warren Buffett offers to reinsure $800 billion in municipal bonds
Posted Feb 12th 2008 8:52AM by Zac Bissonnette
Filed under: Berkshire Hathaway (BRK.A), Market matters
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Reader Comments (Page 1 of 1)
2-12-2008 @ 11:31AM
doc said...
I like how these reporters dont even know the difference between a million and a billion and interchange the two its 800 billion not million.
2-12-2008 @ 12:01PM
Sheldon L said...
Get a grip Doc and get an education:
"The plan does free up capital, but at the cost of taking away revenues from the company's future business. Bond insurer's provide insurance on some 2.5 trillion in debt about half of exposure represents low-risk municipal insurance for towns, city and state governments"
Buffett is not putting up $800 Billion but it does not take much to insure the Municpal Bonds portion of the portfolios -- because they rarely default. He has not offerred to cover losses on anything risky, just the safe part of the portfolios-- for a huge profit.
This is a bad deal for AMBAC an MBIA because Buffett is in a sense only insuring peoples insecurities not taking much actual risk.
2-12-2008 @ 12:21PM
doc said...
Hey sport, the title of article says he is reinsuring 800 million in municpal bonds. Is English your first language ??
2-12-2008 @ 3:06PM
Sheldon L said...
NEW YORK (AP) — Billionaire investor Warren Buffett is offering to help out troubled bond insurers by offering a second level of insurance on up to $800 billion in municipal bonds.