
Clock ticking for troubled monolines
Simultaneously, Ambac announced plans for a $1 billion capital injection through the sale of equity and equity-linked notes, and slashed its dividends by 67%. However, this was not enough to prevent Moody’s Investors Service placing Ambac on review for downgrade – a measure already taken by Fitch Ratings and Standard & Poor’s.
Ambac’s stock price plummeted 39% on Wednesday, while five-year credit default swaps for the insurer widened 85 basis points to 533bp.
A research report by London-based Royal Bank of Scotland analyst Michael Cox cast doubt on Ambac’s ability to raise the required capital.
“We now see significant execution risk with its capital plan,” wrote Cox. “The market has deteriorated since MBIA sold its surplus notes, with those notes seeing considerable weakness in the secondary market. New credit losses at Ambac will hurt investor confidence in the insured portfolio.”
MBIA last week completed a 25-year subordinated offering, with an option to call the notes after five years. The move was enough for Fitch to affirm MBIA’s triple-A ratings yesterday with a stable outlook. However, deteriorating investor confidence in the monolines has seen spreads for the notes widen from a 14% launch coupon to 17% in secondary trading.
With the exception of FSA and Assured Guaranty, which have only limited exposure to US subprime mortgage debt, the immediate outlook for monolines looks set to worsen. Decreases in US house prices are expected to be larger than previously thought, prompting S&P to further review monoline exposures to the subprime sector. S&P will now assume losses on 2006 portfolios of 19% rather than 14%, increasing significantly the prospect of downgrades. Results from the review are expected next week.
Downgrades already seem unavoidable for two other monolines, FGIC and SCA, both on ratings watch negative by all three agencies. To avert downgrades, FGIC needs to raise $1 billion – 39% of its statutory capital – while SCA’s position is even more precarious. SCA’s capital shortfall is $2 billion, greater than its $1.7 billion statutory capital base.
“Their new capital requirements are greater than those of MBIA and Ambac relative to their size and we simply cannot see where they can raise the capital from,” said Cox.
See also:
S&P puts pressure on monolines
Monolines in a world of pain
Ratings figure
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Derivatives
Market ‘not ready’ for US Treasuries clearing mandate
“Client clearing for Treasuries doesn’t really exist,” says Barclays exec, while DTCC points to gaps in market awareness
Traders pin Sonia derivative woes on UK’s local difficulties
Market participants say BoE forecasts and mini-budget help explain RFR products’ lack of liquidity
BNPP back in dealer top three for FX forwards with mutuals
Deutsche Bank, HSBC hit by cuts at Vanguard and Pimco in Q2
MassMutual exited inflation hedges in Q2
Counterparty Radar: Closure of $1.5 billion book dealt a blow to BNP Paribas’s dealer ranking
SGX’s new FX platform sees increased NDF trading from US firms
Sef exemption opens door to increased US buy-side interest
Why Isda ditched ‘off-cycle’ updates for Simm
Ad hoc updates riled industry, while regulators pushed for predictability in model recalibrations
How Chenavari is adapting to an uncertain macro regime
Talking Heads 2023: Fund chief Loic Fery eyes rebalancing between public and private credit strategies
Bloomberg consults on BSBY cessation
Credit-sensitive Libor replacement faces 12-month run-off after damning Iosco verdict