Was it just coincidence or retribution that Ambac Financial Corp. ended its ratings contract with Fitch Ratings? Ambac released a terse press release Wednesday of its action, adding, "Our decision to refocus and realign our business around our core expertise in the public finance and infrastructure sectors has led us to re-evaluate our ratings needs." And for Ambac, its needs apparently didn't include spending money on a ratings downgrade from Fitch that only hurt its bottom line.
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Fitch was the first of the three major credit agencies to downgrade Ambac to AA from AAA. The move set off a firestorm for Ambac, essentially killing one of its revenue streams -- the company needed to maintain a AAA rating to write new business. Eventually, Standard & Poor's and Moody's Investors Service added to Ambac's credit woes with downgrades of their own.
The action obviously sends a bad message to the three rating agencies. If a downgrade necessitates the end of a ratings contract, the agencies would certainly have some reservations to lower a rating. Maybe that's why the agencies were late in detecting problems at Enron Corp., MCI and a host other companies that went down the tubes.
For once, it seemed at least one of the credit agencies was on the ball in helping to detect a ticking time bomb and having the courage to make an honest call to alert the public. - Gerald Magpily
See Ambac press release
See MarketWatch article
See Dealscape: Monoline troubles beat up bank stocks
