Financial Guaranty Insurance Corp., the third-biggest bond insurer that just lost its triple A bond rating because of subprime-related losses, plans to split into two companies, explains Erin Burnett.
The company would be split into a municipal bond insurer and a structured finance insurance company, in a ''good-bank/bad-bank'' plan that would split off the relatively safe business of insuring municipal debt from the riskier business of guaranteeing repackaged mortgages and other debt.
Will Ambac do the same?
Ambac CEO Michael Callen joins the panel. Following is a synopsis of his main points.
Will you split Ambac in two like Financial Guaranty Insurance?
“We’re looking at that as an alternative,” says Callen, “because we have to. We have a triple A business on the municipal side. And it’s a very different business from structured finance. It’s a very different risk. So clearly one has to look at that.”
“But (the decision) will take time (to make) because you have to interact with the ratings agencies. They like the muny business; it’s always been triple A. But what do they think about the structured finance business standing on its own. That would have to play a role, here.”
What do you think of NY Governor Eliot Spitzer’s testimony before congress and his suggestion that steps must be taken within days?
“The ideas of days is all pinned on the ratings agencies,” replies Callen, "because they have been looking at their models very closely and changing them rapidly."
He adds, “If you want to maintain a triple A rating.. they could call you and say whoops you need more capital. I don’t criticize them; they’re doing their job. But Spitzer was saying in order to retain a triple A rating under the new rules, it will require additional capital.”
Will you be raising capital over the next week?
“I can’t say that,” replies Callen. “I can’t comment at this point. But we’ll see.”
Traders, would you buy Ambac?