Saturday, January 19, 2008

Bond insurers weather hit to ratings

--The two biggest insurers, MBIA Inc. and Ambac ($600 bil) Financial Group Inc., have long maintained triple-A financial-strength ratings, which they used to insure some $2.4 trillion of bonds. --The expected turmoil fueled rumors of government orchestrated bailouts funded by the big Wall Street banks and others who stand to lose billions of dollars if they lose the insurance on the battered securities they are holding. People familiar with the matter said regulators are watching the situation carefully, but don't see the need for immediate action. --One reason a bailout might not be necessary is the bond insurers aren't on the hook for big cash payments the moment bonds default. Instead, they make the bonds' regular interest payments until maturity, which could be decades away. During that time, the insurers should continue to get premium payments on the bonds. Also, a downgrade doesn't mean MBIA or Ambac will have to post additional collateral, so they are unlikely to face a cash crunch. --As of Sept. 30, Ambac had exposure to about $60 billion of collateralized-debt obligations, according to Ambac's Mr. Poillon. MBIA had CDO exposure of about $130 billion, of which about $30 billion was mortgage-related, said MBIA's Mr. Chaplin.

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