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Friday, May 30, 2008

Ambac MBIA: Junk Rating Caa1

Well, what have we here? Ambac and MBIA should have junk ratings? You don’t say!

Moody's Implied Ratings Lab Reveals Ambac, MBIA Turning to Junk: “Moody's Investors Service has created a new unit that surprises even its own director.

The team from Moody's Analytics, which operates separately from Moody's ratings division, uses credit-default swap prices as an alternative system of grading debt. These so-called implied ratings often differ significantly from Moody's official grades.

The implied ratings frequently show that swap traders think debt is in more danger of defaulting than Moody's credit ratings signify. And here's the kicker: The swaps traders are usually right.

“When I first saw this product, my reaction was, ‘Goodness gracious, Moody's has got a product that is basically publicizing where the market disagrees with Moody's,’” says David Munves, managing director for credit strategy research at Moody's Analytics. The implied-ratings unit works in a corner of Moody's new world headquarters in lower Manhattan, across the street from Ground Zero.

“But these differences are out there,” Munves says. “We might as well capture and learn from it what we can.”

The credit quality of bond insurers, which have been at the center of the subprime storm, differ dramatically. The official ratings of these companies say the insurers are in great shape; the alternative ratings say they're in dire danger of defaulting on their debts.”

The difference is massive and it is captured quite well. The market is quickly learning that Moody’s is nothing but a scam.

“Moody's implied-ratings group paints a completely different picture. Using the CDS market, Munves's unit rates both MBIA and Ambac Caa1. That's seven notches below junk and 15 below the official Moody's rating.

Swap traders see there's a huge risk that Ambac and MBIA will default, hedge fund adviser Tim Backshall says. He says swap traders don't trust S&P's and Moody's investment-grade ratings for the companies.”

Seriously, what good are these ratings agencies? Traders are more accurate in their assessment of credit quality. They would have to be, because they put their own money on the line. Those not accurate enough blow their accounts and fade into the night…

A 15 notch difference? If Moody’s had any credibility left at all, it has to be gone now.

Ambac shares fall after April write-down disclosure: “Shares of bond insurer Ambac Financial Group Inc (ABK) fell sharply to a record low on Wednesday, after it released data showing it took a large write-down on investments last month.

Ambac said it marked down the value of a derivatives portfolio linked to mortgage securities by $228 million in April. Net investment income was $42.2 million, offset by a $53.4 million decline in the market value of other investments.”

ABK has quietly lost the $5 support area and has gone into a soft gentle slide to a low of $2.88.

Away from the media spotlight, MBI has gone into a quiet little swan dive as well. All support levels have been cracked.

Did the computers make you do this too Moody’s? Computer’s seem to be out maneuvering the fools over at Moody’s rather frequently these days… (CIFG, MBI, ABK and Moody’s: The Computer’s Made Us Do It)

Monoline Related Posts:
MBIA Reports Scary Earnings; NEGATIVE Revenues
Quiet, Sneaky Little Downgrades: CFC, MBI
Ambac ‘Bailout’: Why Bother?
Ambac Bailout: The Wheels Come Off
Monoline Bailouts: The Great Circle Jerk

Related Posts:
Fragile Banks: More Bailouts, More Capital
The Race To The Bottom Accelerates
The South Sea Bubble and Today’s Central Banks: FRB, BOE, ECB
Dammit, Why Won’t You Learn?
The TED Spread, LIBOR and EURIBOR = Scary Bad
Mortgage Insurers (Quietly) Downgraded: CDS Spreads Scream Trouble

6 comments:

Loco UNO Norvegia said...

Dont worry Mr Ninja!

They got it all figured out already
It will unfortunately mean nothing to "them"

Lets just go back and grow our own vegetables:)

sc said...

I agree completely with your chart's assessment. I have puts on MBIA and await their collapse. With key support for the stock having faded a capital raise will have to be very creative and I can't imagine how they pull it off.

The loss of AAA will have a large impact still on the banks which rely on Basle II that employs rating-based capital models. When ABK/MBI go, banks will have to raise more capital and will take writedowns. For this, I am long SKF around this 105-110 level.

This is a trainwreck that is now happening in slower motion due to regulators manipulating the raters to support the banking industry.

Great blog.

Mike said...

good post

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