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Shares of the two largest U.S. bond insurers, MBIA Inc. and Ambac Financial Group Inc., took a tumble Wednesday following Moody's Investors Service's warning that it may downgrade the triple-A ratings of these recently capitalized monolines. MBIA slid 17% to close at $2.49 per share, and Ambac fell 15.84% to $1.06.
Moody's announced that it has placed MBIA's triple-A insurance financial strength rating on review for possible downgrade reflecting its "growing concern that MBIA's credit profile may no longer be consistent with current ratings given the company's diminished new business prospects and financial flexibility, coupled with potential for higher expected and stress losses within the insurance portfolio." MBIA earlier this year raised about $2.6 billion in new capital including an $800 million investment from Warburg Pincus, a stock offering and a surplus notes offering to maintain its triple-A status. Jay Brown, MBIA's chairman and CEO, responded to Moody's move by stating, "When Moody's affirmed our rating with a negative outlook in February, we believed that it would refrain for six to 12 months from taking additional ratings actions unless the environment, and we believe our capital position has improved." Moody's Ambac ratings move reflects its "significantly constrained new business prospects and financial flexibility, as well as possible increased expected and stress loss projections among its mortgage-related risk exposures." Ambac earlier this year sought to pad its safety net against future losses via a $1.5 billion stock and convertible securities offering. Ambac quickly shot back at Moody's move, stating, "We are disappointed by the Moody's announcement particularly in light of the significant progress we have made to strengthen our capital position and refocus our business." While both monolines said they do not plan on raising any new capital in the immediate future, another major bond insurer FGIC Corp., which is saddled with junk ratings, is still in search of new capital. Facing pressure from the New York State Insurance Department to formalize plans to deal with future losses on structured finance products, FGIC said in early May that it received proposals from strategic partners, reinsurers and private equity firms and expects to formalize a proposal within weeks. Well, weeks have passed and still no news. PMI Group Inc., FGIC's largest owner, recorded a 4.69% share decline on Wednesday to close at $5.49. A dip in oil prices Wednesday appears to have offset the monoline news' affect on the broader market as the Dow Jones Industrial Average inched downward 12.37 points to close at 12,390.48. - Michael Rudnick Categories Deal Video
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