Thanks to a downgrade warning from Moody's, bond insurers Ambac Financial Group (NYSE: ABK) and MBIA Inc. (NYSE: MBI) are sitting out today's massive rally in financial stocks. Late Thursday, Moody's announced that it may downgrade the duo's ratings by more than one notch due to rising losses from subprime mortgage debt. So far today, the news has prompted a 7% drop in MBIA shares, and a slump of nearly 8% for Ambac.

In a statement, Moody's said, "Because both Ambac and MBIA are meaningfully exposed to the risk of U.S. subprime mortgages and other residential mortgage products, the revised assumptions are expected to have a significant impact on the firms' capital positions and multi-notch downgrades are possible." Specifically, the "A2" insurance financial strength rating of MBIA's insurance unit is under review, as is the "Aa3" insurance financial strength rating for Ambac.

Neither bond insurer seems particularly pleased by Moody's decision. Jay Brown, chairman and CEO of MBIA, said that the review reflects "inherent flaws" in the ratings company's logic, and added that his company has a capital cushion of more than $3 billion. Ambac's chairman and chief executive, Michael Callen, noted his "surprise and disappointment" at the news, and added that "Moody's ratings actions continue to cause confusion, uncertainty and the risk of material economic damange if their assumptions ultimately prove to be too onerous."

Despite today's plunge, MBI and ABK remain poised atop support from their respective 10-week moving averages. Both bond insurers have endured massive price plunges amid subprime-related fallout, but they've recently rebounded. Ambac now boasts a 60-day relative-strength reading of 381% versus the S&P 500 Index, while MBIA's is 312%.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

Ambac Financial and MBIA Inc. plunge on Moody's downgrade warning originally appeared on BloggingStocks on Fri, 19 Sep 2008 12:58:00 EST. Please see our terms for use of feeds.

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next. (See all 25).

While financial-services firms have been dragged down as a group for more than a year, few have flamed out with the spectacular ferocity of municipal bond insurer MBIA Inc. (NYSE: MBI). In fact, among equities listed on the S&P 500 during the past decade, only one stock has suffered a more severe plunge in share price.

What went wrong? At no. 2 on our list of SPX slackers, MBI lost 91% of its value during the decade that ended June 30, 2008. The stock peaked at $76.02 in January 2007, which marked the last in a series of higher highs for the formerly uptrending security.

MBIA's troubles first started in January 2007, though its issues at the time would pale in comparison with later challenges. Then, the company agreed to pay $75 million to settle civil securities-fraud charges by federal and New York State authorities. MBIA was accused of making secret side deals with reinsurance companies to avoid stating a $170-million loss in 1998. As part of the settlement, MBIA said it would restate earnings from 1998 through 2004 and improve its business and accounting procedures.

Continue reading Worst 10-year performers: MBIA takes a triple-A nosedive on risky mortgage debt

Worst 10-year performers: MBIA takes a triple-A nosedive on risky mortgage debt originally appeared on BloggingStocks on Fri, 01 Aug 2008 17:00:00 EST. Please see our terms for use of feeds.