The Last Hoorah

Bond insurers have made front page news lately in the face of severe Subprime losses and their potential downgrade from ratings companies. Calculated Risk reports as follows:

Standard & Poor’s Ratings Services today lowered its financial strength, financial enhancement, and issuer credit ratings on Financial Guaranty Insurance Co. to ‘AA’ from ‘AAA’ and its senior unsecured and issuer credit ratings on FGIC Corp. to ‘A’ from ‘AA.’ Standard & Poor’s also placed all the above ratings on CreditWatch with developing implications.

At the same time, Standard & Poor’s placed various ratings on MBIA Insurance Corp., XL Capital Assurance Inc., XL Financial Assurance Ltd., and their related entities on CreditWatch with negative implications. The ratings on various related contingent capital facilities were also affected.

Apparently that did not sit too well with MBIA, as the report continues:

Chief Executive Officer Gary Dunton mounted a spirited defense on a conference call, following MBIA’s quarterly earnings report, against “fear mongering” and “distortions’ that he said have contributed to last year’s dramatic stock-price decline. He also said that MBIA’s capital plan currently exceeds all stated rating agency requirements.

MBIA hasn’t been downgraded so far; this is just a move to CreditWatch with negative implications:

Despite the significant losses posted by the company, Mr. Dunton said, “there is nothing that we can identify that justifies the 80% drop in our stock price since last year.”

Hmm, what am I not seeing here? A company that has lost billions of dollars due to Subprime investments and the CEO can’t justify why the stock dropped some 80%? Maybe eating a little bit of humble pie would be a step in the right direction instead of sounding like a cornered rat moments before it’s being devoured. Or is a desperate offense a good defense?

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Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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