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.

The No. 1 and No. 2 spots on our underperformers' list both belong to bond insurers. Along with MBIA Inc. (NYSE: MBI), Ambac Financial Group (NYSE: ABK) has been battered bloody during the past 12 months. Prior to that, the security was riding high on a years-long uptrend, before some of its more unsavory investments came to light amid the subprime crisis.

What went wrong? At No. 1 on our list of SPX losers, ABK lost a staggering 97% of its value during the 10-year period that concluded on June 30, 2008. From its May 2007 peak of $96.10, ABK is down 98%.

Ambac's story is not too different from that of MBIA. The company enjoyed triple-A ratings, even as its portfolio grew increasingly more risky under the weight of subprime-linked debt. As of December 2007, no insurer was more exposed to bad mortgage debt than Ambac -- the company insured $22 billion of subprime mortgage debt, nearly double the exposure of MBIA.

Continue reading Worst 10-year performers: Ambac Financial tops the list

Worst 10-year performers: Ambac Financial tops the list originally appeared on BloggingStocks on Sat, 02 Aug 2008 10:00:00 EST. Please see our terms for use of feeds.

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Closing bell: Retail and tech ignore woes and oil gains originally appeared on BloggingStocks on Thu, 05 Jun 2008 16:09:00 EST. Please see our terms for use of feeds.

Bloomberg News reports that a bailout of Ambac Financial Group (NYSE: ABK) is going to be announced next week. Ambac rallied on speculation a recapitalization would salvage the second-largest bond guarantor's AAA credit rating. The Dow is rising -- going from being down 120 points earlier in the day to being up 97. Charlie Gasparino, CNBC's on-air editor, suggests that the deal could be announced next Monday or Tuesday.

Since no details are available, I think the market's movement reflects panicked short covering before the weekend. If Gasparino is right about this, it could help limit worries that have sent the market down almost 13% from its October 2007 high. As I posted here, the bond insurance market is a critical support system for the securitization industry. If it can retain its AAA rating, there might be some hope for limiting the downside damage.

We'll soon know whether this rumor is true.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Ambac securities.

Ambac deal rumor bails out Dow originally appeared on BloggingStocks on Fri, 22 Feb 2008 16:20:00 EST. Please see our terms for use of feeds.

Continue reading MBIA calls latest Ackman proposal 'no more credible' than open-source model

MBIA calls latest Ackman proposal 'no more credible' than open-source model originally appeared on BloggingStocks on Thu, 21 Feb 2008 13:22:00 EST. Please see our terms for use of feeds.

Further, the university said it may make offers to buy back almost $340 million more in debt, Bloomberg News reported Tuesday. Other good-credit institutions that have faced higher auction-market interest rates include The Port Authority of New York and New Jersey, Georgetown University and Carnegie Hall.

Auction-rate securities are long-term bonds that mimic short-term debt. Interest rates are reset in auctions held regularly, usually between seven and 35 days. Typically, municipalities, student-loan providers and museums, among others, use this type of instrument because it gives them a long-term credit source at short-term interest rates.

Jittery auction-rate market

However, these are not typical times for the credit markets. Auctions have failed when investors refused to buy the securities, and investment banks such as Citigroup (NYSE: C) and Goldman Sachs (NYSE: GS), already laden with unwanted debt and trying to rebuild their balance sheets, refused to provide capital to support the market.

Continue reading Auction rates remain high as markets await word on bond insurers

Auction rates remain high as markets await word on bond insurers originally appeared on BloggingStocks on Tue, 19 Feb 2008 15:20:00 EST. Please see our terms for use of feeds.

Continue reading Economists say auction-rate bond failures underscore need for MBIA, Ambac re-capitalization

Economists say auction-rate bond failures underscore need for MBIA, Ambac re-capitalization originally appeared on BloggingStocks on Fri, 15 Feb 2008 14:50:00 EST. Please see our terms for use of feeds.

New York governor Eliot Spitzer may be a lawyer by training, but he must harbor secret aspirations of becoming a financier. He will tell Congress today that the problems at bond insurance companies could become "financial tsunami" if they are not fixed.

Spitzer has a point. As Reuters points out, "if insurers are downgraded by ratings agencies, investors that can only hold top-rated bonds may have to sell billions of dollars of securities, lifting borrowing costs for cities and consumers alike." Banks might also have to write-down the value of any of these bonds that they hold on their balance sheets.

The debate now is whether the private sector should handle this on its own with banks including Citigroup (NYSE: C) providing financing to insurance firms such as Ambac (NYSE: ABK). The banks already have credit problems that could make those investments difficult.

If Spitzer truly wants to avoid what be feels will be a catastrophe he needs to say that New York State will provide the bond insurers some financial guarantees and capital. Then the banks are likely to come in.

Douglas A. McIntyre is an editor at 247wallst.com.

Spitzer says bond insurance problem could be 'financial tsunami' originally appeared on BloggingStocks on Thu, 14 Feb 2008 08:50:00 EST. Please see our terms for use of feeds.

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Fed may cut rates again to lower borrowing costs for corporations, households originally appeared on BloggingStocks on Wed, 13 Feb 2008 18:20:00 EST. Please see our terms for use of feeds.

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Global economic confidence drops for third straight month originally appeared on BloggingStocks on Wed, 13 Feb 2008 15:31:00 EST. Please see our terms for use of feeds.

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U.S. economy's success in 2008 may depend on 'success' definition originally appeared on BloggingStocks on Wed, 06 Feb 2008 17:12:00 EST. Please see our terms for use of feeds.

MBIA bets it can keep AAA rating originally appeared on BloggingStocks on Thu, 31 Jan 2008 15:13:00 EST. Please see our terms for use of feeds.

New York State Insurance Superintendent Eric Dinallo has been twisting the arms of major banks to get them to put up $15 billion or so to bail out Ambac Financial Group (NYSE: ABK) and MBIA Inc. (NYSE: MBIA). If the muni bond insurers cannot maintain their high ratings with agencies like S&P, the value of the bonds that they insure could drop sharply, leading to more write-offs at Wall Street firms.

S&P has now said that the $15 billion may be just fine. "The dollars we understand that he's talking about -- $5 billion immediately and $15 billion ultimately -- those are substantial numbers and I think could give us a fair degree of comfort relative to resolving any issues about capital adequacy," S&P analyst Dick Smith said in an interview with Reuters.

The fact of the matter is that no one knows how much money will be needed because no one is certain how much worse the credit crisis and mortgage debacles may get. That, in turn, is likely to make big banks gun-shy about writing checks for money that they may not have themselves. Most are in the market raising funds to save themselves.

The value of the two big muni bond insurers could still go to zero and the big banks my not want to see all of that capital disappear.

If New York State wants to act, it should bring capital of its own to the table and not ask the banks to carry the whole load.

Douglas A. McIntyre is an editor at 247wallst.com.

How much money to save the bond insurers? originally appeared on BloggingStocks on Sat, 26 Jan 2008 12:10:00 EST. Please see our terms for use of feeds.

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Societe Generale trader scandal unlikely to deflect Fed off easing course originally appeared on BloggingStocks on Fri, 25 Jan 2008 11:50:00 EST. Please see our terms for use of feeds.

Yesterday, the market rebounded from down 300 to up 300 points on the strength of rumors of a bailout for bond insurance companies like MBIA Inc. (NYSE: MBI). But today's article in the New York Times suggests to me that there may be less there than meets the eye. That's because the report says that insurance regulators are trying to raise $15 billion from Citigroup (NYSE: C), Merrill Lynch (NYSE: MER) and Goldman Sachs Group (NYSE: GS).

Is anybody home? In case anyone forgot, Citigroup and Merrill bot announced huge losses and are scrambling to raise capital. Citi lost $1.99 a share and Merrill lost a cool $12.01. Fortunately, they've recently raised $18.7 billion and $12.8 billion respectively from Sovereign Wealth Funds (SWFs). But as a Citi investor, I don't want it turning around and investing that capital in yet another subprime-related house of cards.

Continue reading Can shaky Citi and Merrill bail out bond insurance?

Can shaky Citi and Merrill bail out bond insurance? originally appeared on BloggingStocks on Thu, 24 Jan 2008 10:28:00 EST. Please see our terms for use of feeds.

MAJOR PAPERS:

• Two years after saying it would open about 100 new branches a year, Citigroup Incorporated (NYSE: C) has decided to drastically cut back, and will instead focus on big markets, reported the Wall Street Journal.
• Wal-Mart Stores Inc (NYSE: WMT) wants a piece of the pharmacy benefits business, the Wall Street Journal reported, and will begin an initial program to help "select employers...manage how they process and pay prescription claims," CEO Lee Scott said.
• New York insurance superintendent Eric Dinallo is urging bank executives to provide up to $5B in initial capital to support struggling bond insurers such as MBIA Inc (NYSE: MBI) and Ambac Financial Group Inc (NYSE: ABK), the Financial Times reported. Sources believe the insurance regulator is looking for leading U.S. banks to ultimately commit up to $15B.

• According to the Associated Press, Yahoo! Inc (MASDAQ: YHOO) may be eyeing an online music service, two record company executives familiar with the matter said. As part of an ad-supported service, the sources said Yahoo has held talks with several major record labels to potentially offer unprotected MP3s for free or for sale.

Newspaper wrap-up: NYS regulator urges banks to bail out struggling bond insurers originally appeared on BloggingStocks on Thu, 24 Jan 2008 08:00:00 EST. Please see our terms for use of feeds.

Just yesterday, Cramer was making his pitch for catastrophe unless somebody saved the bond insurers who were losing their AAA rating and thus being driven out of business. Without bond insurers, all those $3.7 trillion worth of corporate bonds -- and plenty of other municipal and state bonds too -- had nobody to back them up in case the bond issuers defaulted. In Cramer's view, this was spooking the market.

But this afternoon, just as it did last August when Cramer issued the whine heard round the financial world, the government gave Cramer what he wanted. But we didn't get a complete repeat of last August -- when the Fed cut interest rates for Cramer. Today, Bloomberg News reported that the New York Insurance Department is meeting with bond insurers. This includes one of the biggest, MBIA Inc. (NYSE: MBI), which insures $2.4 trillion worth of bonds. It is likely they'll be bailed out. And the market ended up rising about 300 points.

Unfortunately, the market benefit of those government bailouts only last a day or two. What will Cramer whine for next?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in MBIA securities.

Cramer's Second Victory: How an insurance bailout spiked today's Dow originally appeared on BloggingStocks on Wed, 23 Jan 2008 17:50:00 EST. Please see our terms for use of feeds.

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"My favorite picks for 2008 are two monoline bond insurers: MBIA Inc. (NYSE: MBI) and AMBAC (NYSE: ABK)," says Richard Lehmann, editor of The Forbes Lehmann Income Securities Investor.

"These two companies have been heavily shorted by speculators because of their exposure to subprime mortgage defaults. At current pricing, they are selling at half book value and only three times earnings.

"The reason for current concern is that they will lose their AAA credit enhancement ratings and therefore their ability to conduct new business, something I don't think is likely because there are various remedies to forestall such an event.

"For 2008, the demand for their services should grow substantially since the reliance by lenders on credit ratings alone has been seriously eroded. Also, their insurance of CMOs and CDOs only protect the most senior tier of a multi-tiered debt instrument, so their loss exposure is very marginal and years off.

Continue reading Best Stocks for 2008: Forbes expert banks on MBIA (MBI) and AMBAC (ABK)

Best Stocks for 2008: Forbes expert banks on MBIA (MBI) and AMBAC (ABK) originally appeared on BloggingStocks on Wed, 26 Dec 2007 14:15:00 EST. Please see our terms for use of feeds.

Investors normally jump at the chance of tax free municipal bonds, and cities normally don't have any trouble funding projects they want to do using those types of bonds. Well, the bond funds have dried up for many municipalities that have lower credit ratings, according to the Washington Post this morning. Chicago was forced to cancel a $960 million bond deal, Miami-Dade had to pull a $540 million bond deal for its airport and Washington, D.C. stopped the sale of $350 million in bonds for schools, parks and roads. The municipal bond market is a $2.5 trillion market that raises funds for buildings, ballparks and other key projects for cities and school systems.

Why is this happening? Because the bond insurers, which normally would back these bonds, are overextended due to the mortgage mess. They need to cover steep losses because of the massive mortgage write-downs and they don't have the capital to insure new projects.

Municipalities have to choose between paying higher rates because they can't get the secondary bond insurance or put off intended projects. If they pay higher interest rates, the taxpayers will have to foot the bill. So many cities with lower credit ratings have decided to pull back the bond offers and delay needed projects. They face a double whammy because tax revenues for many of these cities will also drop as their core source of funding -- property taxes -- fall as the value of homes is falling.

Continue reading Cities finding it hard to get money thanks to credit crisis

Cities finding it hard to get money thanks to credit crisis originally appeared on BloggingStocks on Thu, 29 Nov 2007 10:22:00 EST. Please see our terms for use of feeds.