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Reinsurers Returning Capital Despite Catastrophes

With borrowing costs at their lowest levels since 2004, reinsurers are loading up on corporate debt in part to fund stock buybacks. The latest tally, according to Bloomberg News, is $1.34 billion in additional borrowing, with Endurance Specialty Holdings (ENH), a Bermuda-based company, recently selling $85 million in bonds. Other recent transactions include Axis Capital Holdings (AXS) and PartnerRe (PRE) each issuing $500 million in bonds and RenaissanceRe (RNR) adding $250 million to the count.

Continue reading Reinsurers Returning Capital Despite Catastrophes

Q1 Cats Likely to Have Reinsurance Earnings Impact

After weeks of speculation, the financial damage from the Chile earthquake and Windstorm Xynthia in Europe is starting to emerge. According to a recent report by Moody's, 16 global reinsurance companies have reported their net insured losses (before taxes) from the catastrophe event, and the damage has already reached $3.5 billion, increasing an already high tally. The firm expects these events to have a noticeable impact on first quarter results for the industry.

According to the report, the first quarter of 2010's results "will have many moving pieces, including the possibility of favorable loss reserve development." It continues, though, that "we would expect a number of reinsurers to post both operating and net losses for the quarter."

Continue reading Q1 Cats Likely to Have Reinsurance Earnings Impact

Berkshire's Moody's downgrades Buffett

In what surely must be the PR move of the decade, Moody's Corp. (NYSE: MCO) has downgraded Berkshire Hathaway (NYSE: BRK.A) from AAA to AA2.

Why is this a great PR move? Well, Berkshire owns 20% of Moody's. And what could be a better demonstration of Moody's independence and objectivity than its decision to downgrade the financial strength of its biggest shareholder?

Pretty clever, no? Sure -- unless you start to consider that Moody's and the other ratings agencies gorged on fees from investment banks to rate toxic waste for years -- using their AAA credit ratings to convince investors to buy the securities. Now that the ratings agencies have no fees to earn from rating toxic waste, they are studiously trying to rebuild their reputation for objectivity.

Continue reading Berkshire's Moody's downgrades Buffett

MBIA downgrade? How low can it go?

Bloomberg News reports that Moody's (NYSE: MCO) may downgrade municipal bond insurer MBIA (NYSE: MBI) after it reported deepening losses from the mortgage-market slump. MBIA's insurance financial strength rating may fall to the Aa range, although a drop to the A category is possible. MBIA's stock is down 91% since the end of May 2007.

That's when I first suggested that investors consider selling MBIA shares short. William Ackman had already shorted MBIA because he thought it lacked the capital needed to support its obligations. Back then, MBIA traded at $66.59 a share -- today it's down to $5.88. His bet proved prescient.

Meanwhile, investors are wagering that MBIA won't make it. Credit-default swaps tied to MBIA's insurance unit rose to a record as investors hedged against the risk the company's guarantees will sour. Sellers of five-year contracts demanded 23% upfront and 5% a year. That's up from 18.5% initially and 5% a year yesterday.

Only $5.88 more to go.

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.

Newspaper wrap-up: Barnes & Noble may bid for Borders

MAJOR PAPERS:
  • Barnes & Noble Inc (NYSE: BKS) is considering a bid for rival bookseller Borders Group Inc (NYSE: BGP), the Wall Street Journal reported, a move which would allow Barnes & Noble to improve profits and reduce costs. Antitrust issues could prevent a deal.
  • The Wall Street Journal also reported that Carl Icahn's effort to remove Yahoo! Inc's (NASDAQ: YHOO) board has picked up new supporters, including T. Boone Pickens, who acquired a 0.75% stake. Some Yahoo shareholders believe it is still too early to predict whether Icahn will be able to carry July 3's shareholder vote.
  • A Financial Times investigation discovered that Moody's Corporation (NYSE: MCO) incorrectly awarded top ratings to billions of dollars to debt products due to an error in its computer models. Moody's said it is in the process of "conducting a thorough review" of the rating of the constant proportion debt obligations, which should have been up to four notches lower.
OTHER PAPERS:
  • According to the people briefed on the matter, the New York Times reported that the buyout of Penn National Gaming Inc (NASDAQ: PENN) by Fortress Investment Group (FIG) and Centerbridge Parters may involve revised terms. The sources said the negotiations may "delay or even imperil" the deal.

Junk sometimes is just that

Sometimes when the sky feels like it is falling, there's nowhere to hide. I don't actually believe things are crashing but the sentiment is decidedly negative and it's hard to get finance people to smile these days.

We read about investors who have made the decision to cycle out of equities and put more allocation towards fixed income. Given the fact that yield on the 10-year treasury is 3.89%, investors had been looking more towards junk rated bonds to get any form of yield.

Just this morning, Bloomberg has an article about default rates on junk bonds. Moody's Investors Services, the credit rating agency, now expects "the global default rate on high- yield, high-risk bonds, which finished 2007 at a 26-year low of 0.9 percent, will jump more than fivefold by the end of 2008."

The same Bloomberg article quoted Moody's analyst, Kenneth Emery as saying, "The high-yield default rate will increase to 4.8 percent this year and reach 5 percent by the end of 2009 because a weakening economy and ratings cuts will cause more issuers to miss their interest payments."

Bloomberg says that the percentage of issuers with debt trading at distressed levels rose to 11.5 percent, the highest since July 2003. To emphasize how things are worsening, just a year ago, the rate was 4.2 percent.

If it smells like junk, looks like junk and tastes like junk, well...

Zack Miller the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author holds a long term stock position in GOOG.

Analyst downgrades 7-02-07: NFS, PWAV, SNDK, TGT and UNCA

MOST NOTEWORTHY: SanDisk Corp (SNDK), Nationwide Financial Services (NFS), Unica Corp (UNCA), International Paper Co (IP) and the Apartment REIT sector topped the day's noteworthy downgrades:
  • CIBC cut SanDisk Corp (NASDAQ: SNDK) to Sector Performer from Outperformer on valuation.
  • Ferris Baker cut Unica Corp (NASDAQ: UNCA) to Sell from Hold following the company's announcement that it has dismissed auditors Ernst & Young. Montgomery downgraded Unica to Hold from Buy on valuation.
  • International Paper (NYSE: IP) was downgraded to Neutral from Outperform at Credit Suisse on valuation.
OTHER DOWNGRADES:
Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Analyst downgrades 2-26-07: Circuit City & The New York Times downgraded

MOST NOTEWORTHY: The New York Times Co (NYT), Moody's Corp (MCO), Nokia Corp ADS (NOK) and Circuit City Stores (CC) were some of today's most notable downgrades:
  • Lehman Brothers cut the New York Times Co (NYSE: NYT) to Underweight from Equal-Weight as they believe the company's recent cost cuts reflect management's concerns over its top-line.
  • Moody's Corp (NYSE: MCO) was downgraded to Underperform from Neutral at Credit Suisse based on the potential to impact from a slowdown in collateralized debt obligation issuance on growth.
  • Nokia Corp ADS (NYSE: NOK) was removed from Goldman Sachs's Conviction Buy List based on its recent strength.
  • William Blair cut Circuit City Stores (NYSE: CC) to Underperform from Market Perform as the firm has concerns over the slowing of the advanced TV cycle and challenges to the company's turnaround plans.
OTHER DOWNGRADES:
  • UBS lowered Cypress Semiconductor Corp's (NYSE: CY) rating to Neutral from Buy based on valuation.
  • Citigroup cut BAE Systems plc ADR (OTC: BAESY) to Hold from Buy.
  • Raymond James downgraded Caremark RX (NYSE: CMX) to Market Perform from Outperform.
  • Matrix USA downgraded The Goodyear Tire & Rubber Co (NYSE: GT) to Hold from Buy and removed the company from its Focus List as they see little upside from its recent rally.
  • Nollenberger downgraded shares of Station Casinos (NYSE: STN) to Neutral from Buy after the company accepted a revised buyout offer from Fertitta Colony Partners as they feel the chance for a higher offer to emerge is unlikely.
Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Symbol Lookup
IndexesChangePrice
DJIA-89.2312,801.23
NASDAQ-23.352,903.88
S&P 500-9.311,342.64

Last updated: February 11, 2012: 04:14 AM

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