- Greece Warns Bailout Rebels of Dangerous Path
- Greek Cabinet Approves EU, IMF Bailout Bill
- Iran to Announce 'Very Important' Nuclear Progress
- We're Not Greece: Italian Prime Minister Monti
- S&P Lowers Ratings on 34 Italian Banks
- Private Homebuilders in the US: Dead Men Walking
- Dividend Payout Could Hit Record Amount This Year
- With Investors So Bullish, Stock Pullback Must Be Ahead
- Obama Likely to Call for Cutting Top Corporate Tax Rate
- In Search of America's ‘Hottest Forecasters’
- Dow vs. S&P 500: Which is a Better Investment?
- Mick Fleetwood on the MP3 ‘Dumbing Down’ of Music
- Avis on the Road to Strong Growth: Analyst
- Private Homebuilders: Dead Men Walking
- LinkedIn’s Growth Is Already Priced In: Analyst
- The Real Reason Behind Bank of America’s Rally
- 5 Hedge Funds’ Top Stocks Soar After 2011 Rout
- This Valentine’s Day Love Is Served on a Silver Platter
Troubled Bond Insurers Facing More Downgrades
Text Size 
On-Air Editor
Bond insurers, whose foray into the subprime debt market has led to billions of dollars in losses, are facing more downgrades of their prized Triple A rating.
 |
] and MBIA [MBI
Loading...
()
], also may be downgraded soon despite efforts by New York state insurance regulators to get a delay to allow time for a possible bailout.The growing threat of downgrades, first reported on CNBC late Wednesday afternoon, helped reverse a big stock market rally that was sparked by the Fed's half-point cut in interest rates. Stocks ended up closing lower.
Like other bond insurers, FGIC initially focused on municipal bond deals but ventured into riskier debt securities to boost returns. Massive defaults on U.S. subprime mortgages battered the credit quality of these products, increasing the capital bond insurers needed for an ``AAA'' rating.
Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.
Ambac has already received a downgrade from rating agency Fitch, but has so far been spared by Standard & Poor's and Moody's. MBIA hasn't been downgraded.
Late Wednesday evening, MBIA announced that private-equity firm Warburg Pincus completed a $500 million investment in the bond insurer, paying $31 a share for stock that has fallen to $13.96 a share since the deal was announced last month.
The company on Wednesday also said Warburg managing directors David Coulter and Kewsong Lee were named to the MBIA board. MBIA said a director Richard Walker, general counsel of Deutsche Bank, resigned to avoid any appearance of potential conflicts of interest in light of ongoing bail-out talks among bond insurers, investment banks and New York state's insurance department.
MBIA will host an investor conference call Thursday morning and may provide some clarity on any proposed bailout or if there are additional private equity infusions on the way. MBIA will only take questions that have been emailed to them beforehand, however.
Meanwhile, William Ackman, a hedge fund manager and short-seller of MBIA, is submitting data to the Securities and Exchange Commission and insurance regulators in New York State alleging that MBIA and Ambac are understating their losses.
In his report, Ackman, of Pershing Square Capital, will contend that both bond insurers have said their mark-to-market losses are less than $1.5 billion, but according to his analysis, the losses for each firm will be around $12 billion.
Ackman has come up with this number through an analysis of the vast majority of the CDOs that have been insured by the company. He will claim that his analysis is conservative, meaning that if there is a question about a particular CDO, he doesn’t assume a worst case scenario.
CNBC has confirmed that Ackman has recently met with investor Wilbur Ross to discuss Ross’ examination of Ambac. Ross is interested in buying one of the troubled insurers rather than starting one of his own.
Sources say Ross may be hesitant to put more than $1 billion into Ambac, so if Ackman is right, it might end Ross' interest in the bond insurer.
Wilbur Ross has declined to comment.
- Reuters contributed to this report.
- Marketing clichés aside, sometimes diamonds are for investing.
- The ‘Fast Money’ traders weigh in on fashion related stocks from apparel to footwear.
- This list of the 10 most active cities for speed traps was compiled by Trapster.com. See if your town is there.
- This Valentine’s Day should prove a love fest for restaurants, as many couples will be dining out.
- Here’s a look at Westminster Kennel Club’s most successful breeds—and how much they cost.
- What kind of homes do celebrity couples share? Here’s our updated list. Take a look.
Data is a real-time snapshot *Data is delayed at least 15 minutes
