Ambac Bailout & Small Bank Downgrades: Too Many Snags
CNBC television reported, last weeks ballyhooed bailout of debt guarantor Ambac Financial Group has hit a significant snag
over the amount of capital the banks involved would have to inject into the company.
The snag involves a dispute with the ratings agencies whose verdict is crucial to Ambac retaining its triple A debt rating.
The agencies are calling for the banks to inject more capital given the structure they are proposing for the business.
The Nattering One muses... Yesterday Bernanke commented that there was a good probability of some small bank failures.
Meanwhile S&P & Moodys downgraded a number of small banks. But what about the big guarantors, banks and lenders?
Assured Guaranty Financial Group Inc. today agreed to a $1 billion investment from investor Wilbur Ross...
while Ambac grabbed $3 billion in a rights offering from a gang of big banks and hedge funds.
And the new CEO of MBIA announced a 5 year plan to firm up the capital base with a fistful of cash and a dividend halt.
These "solutions" are like putting a Barney band aid (No not Frank!) and phisohex on a severed femoral artery and expecting results.
But what would you expect? The ratings agencies that gave their blessings to these "solutions"
are the same ones that rubber stamped the quality of the debt and misjudged the bond insurers' capabilities in the first place.
Much like what is going to become the PMI debacle in the real estate markets (defaults up 37% YOY),
the big banks, who are strapped for capital reserves and already technically insolvent,
DON'T have the capital to shore up the guarantors who are on the hook for $400 billion...
Let alone the capital to meet their stockholders equity fair market value positions.
over the amount of capital the banks involved would have to inject into the company.
The snag involves a dispute with the ratings agencies whose verdict is crucial to Ambac retaining its triple A debt rating.
The agencies are calling for the banks to inject more capital given the structure they are proposing for the business.
The Nattering One muses... Yesterday Bernanke commented that there was a good probability of some small bank failures.
Meanwhile S&P & Moodys downgraded a number of small banks. But what about the big guarantors, banks and lenders?
Assured Guaranty Financial Group Inc. today agreed to a $1 billion investment from investor Wilbur Ross...
while Ambac grabbed $3 billion in a rights offering from a gang of big banks and hedge funds.
And the new CEO of MBIA announced a 5 year plan to firm up the capital base with a fistful of cash and a dividend halt.
These "solutions" are like putting a Barney band aid (No not Frank!) and phisohex on a severed femoral artery and expecting results.
But what would you expect? The ratings agencies that gave their blessings to these "solutions"
are the same ones that rubber stamped the quality of the debt and misjudged the bond insurers' capabilities in the first place.
Much like what is going to become the PMI debacle in the real estate markets (defaults up 37% YOY),
the big banks, who are strapped for capital reserves and already technically insolvent,
DON'T have the capital to shore up the guarantors who are on the hook for $400 billion...
Let alone the capital to meet their stockholders equity fair market value positions.
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