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An Attempt At A New Monoline Thread


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Live stream from the Congress Financial Services Committee hearing on the monoline issue. Currently in recess because they're all off to vote, but part 2 comes up shortly. Just had the Governor of NY giving his bit, and the NY regulator is up next, followed by the companies themselves.

Didn't catch all of this, but apparently just as the Chairman, Kanjorski, was giving the bosses of Ambac and MBIA a hard time, he had to suspend the hearing to take a call from the President. It wound up shortly after that. That's from the guys on the Market Ticker Forums, but maybe someone can track down a clip or transcript.

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Bloomberg at it again...

Muni Regulators Seek Disclosure on Auction-Rate Bonds

Feb. 15 (Bloomberg) -- U.S. banks and securities firms may be forced to disclose more information on bidding for auction- rate bonds after dealers stopped buying the securities, triggering more than $20 billion of failures this week that squeezed local governments nationwide.

The U.S. municipal bond market's main regulator, the Municipal Securities Rulemaking Board, plans to seek comment on whether dealers should reveal the number of bidders and disclose how often auctions fail in the $330 billion market for the securities, whose rates are set periodically at auctions, said Executive Director Lynnette Hotchkiss.

Banks including Goldman Sachs Group Inc. and Citigroup Inc. allowed more than 100 auctions to fail this week after they were unable to attract bidders and decided not to buy unwanted securities. The failure nearly doubled borrowing costs on $15 million of bonds sold by Harrisburg International Airport in Pennsylvania to 14 percent, said executive director Tim Edwards. The Port Authority of New York & New Jersey's rate reset at 20 percent on $100 million of debt, up from 4.3 percent a week ago.

``Obviously, auction-rate trading is a big issue right now,'' Hotchkiss said in an interview late yesterday.

Auction-rate bonds are long-term debt with interest rates reset according to bids submitted to banks and securities firms every seven, 28 or 35 days. Banks stopped their typical practice of buying the securities for their own accounts to prevent failures after losses on debt linked to subprime mortgages led to downgrades of some of the bond insurers that back most auction notes.

Insurer Downgrades

As banks backed away from the market under the pressure of $146 billion in credit losses and writedowns, at least 129 auctions failed on Feb. 13. That's left investors who wanted to sell the debt unable to unload the securities and boosted interest costs for cities, hospitals and universities.

Zurich-based UBS AG will no longer buy auction-rate securities that fail to attract enough bidders, and Merrill Lynch & Co. in New York is reducing purchases, people with direct knowledge of the matter said this week.

Hotchkiss declined to detail disclosures that will be included in the notice because it hasn't been approved by the Alexandria, Virginia-based board. She said the notice for comment may be issued within two or three weeks.

Buyers including corporate treasurers held auction-rate securities as a higher-yielding alternative to cash equivalents such as certificates of deposits and savings accounts. New York City owes about $3.5 billion on auction bonds, or 5 percent of the city's total indebtedness.

SEC Discussion

Providing more information on auctions, such as the amount of bids and sale orders, might help the market because it ``could allay some investor concerns about getting stuck holding a security,'' said Joseph Fichera, chief executive officer of Saber Partners, a New York-based adviser to local governments.

The staff at the Securities and Exchange Commission has talked with the board about enhanced disclosure of the auction process, Hotchkiss said.

The board began work in October on changing its trade reporting system to include the interest rate on auction bonds, not just the price. At that time, Frank Chin, chairman and head of the public finance group at New York-based Citigroup, the biggest underwriter of auction-rate debt, said disclosures on details of auctions beyond the rate would be the ``subject of additional dialogue with the SEC.''

The SEC enforces regulations of the municipal board. The commission's approval is required for any new rules.

Scant Information

The board began looking at ways to increase auction-rate disclosure at the request of the SEC, which in 2006 fined 15 banks a total of $13 million for using inside information to submit bids on auction-rate securities. Banks are allowed to continue the practice so long as they disclose to investors that they might bid, though they haven't been required to reveal if, or how much they paid at auctions or what the range of offers was.

Revealing the interest rate would help investors and issuers, Martha Haines, head of the SEC's Office of Municipal Securities, has said.

Investors have few publicly available sources of information on yields of auction-rate securities, beyond indexes published on the Web site of the Securities Industry Financial Markets Association, the bond market's trade group. The indexes are based on securities whose rates reset on Tuesday or Wednesday, and are published with a lag. The most recent indexes are for Feb. 6.

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Oops there's more .... This is all in BOLD, enjoy!

Bank Risk Soars on Concern Bond Insurer Breakup May Fuel Losses

Feb. 15 (Bloomberg) -- The cost of protecting banks from default soared on concern a proposal to break up bond insurers MBIA Inc. and Ambac Financial Group Inc. may trigger further credit market losses.

Credit-default swaps on the Markit iTraxx Financial index of 125 banks and financial institutions jumped 6 basis points to 100 at 11:45 a.m. in London, according to JPMorgan Chase & Co. The Markit iTraxx Japan index rose 4 basis points to 86, Morgan Stanley prices show.

New York Insurance Department Superintendent Eric Dinallo said regulators are trying to help the two biggest bond insurers raise $15 billion to avert rating downgrades that may endanger the $1.2 trillion of debt they guarantee worldwide. One option is to split the insurers' municipal bond business from their money-losing subprime-mortgage units, Dinallo said in a Bloomberg Television interview yesterday.

``A forced breakup along the good business, bad business lines wouldn't be good for banks,'' said Nigel Myer, a research analyst at Dresdner Kleinwort in London. ``Removing the solid cash flows from the municipal bonds would leave the rump rather naked and potentially much less able to meet its obligations.''

Credit-default swaps on Zurich-based UBS AG, Europe's second-biggest bank by assets, rose 3 basis points to 95, according to CMA Datavision. UBS posted the biggest-ever loss by a bank this week, writing down $13.7 billion on securities infected by U.S. subprime mortgages including $871 million on credit protection purchased from bond insurers.

A basis point on a credit-default swap contract protecting 10 million euros ($14.6 million) of debt from default for five years is equivalent to 1,000 euros a year.

Deutsche Bank

Contracts on Frankfurt-based Deutsche Bank AG, Germany's biggest bank, rose 5 basis points to 85 and Credit Suisse Group, Switzerland's second-biggest bank, rose 4 basis points to 92, CMA prices show.

``The stakes have been raised for the banks,'' Royal Bank of Scotland Group Plc analysts led by Michael Cox said in a note to investors today. The threat of an MBIA and Ambac breakup is a ``severe negative'' for bonds and credit-default swaps guaranteed by the companies, the report said.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

Rescue Deadline

Dinallo may have less than two weeks to find a solution. Moody's Investors Service said it plans to complete its review of Armonk, New York-based MBIA and Ambac of New York by the end of the month.

FGIC Corp., the fourth-biggest bond insurer, lost its Aaa rating at Moody's yesterday. The company is in worse financial shape than larger competitors MBIA and Ambac, the ratings firm said. The insurance units of New York-based FGIC were cut six levels to A3 and may be reduced again, Moody's said.

The benchmark Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-risk, high-yield credit ratings rose 24 basis points to 565 today, according to JPMorgan.

Contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 6 basis points to 108.5, Deutsche Bank prices show.

The CDX North America Investment Grade Index rose 2.25 basis points to 140.25 at the close of trading in New York, according to Deutsche Bank.

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fgic have told the NYC insurance dept that it wants to be split into 2 companies.

How they can allow it is beyond me!

Mind you its not going to do much harm to our cause. They only want to protect the ratings on the goverment / state bonds and maybe a few others I would guess. Those bonds are fairly small risk of default i'd hope - but they aren't AAA either. Thats where these companies come in.

Sailing the CDO's and the like down another route will not do anyone any favours, in fact it'll do the opposite because there won't be any nice premiums coming in from the more stable bonds when they need the income most. It just gurantees the total destruction of the CDO market.

:lol::lol::lol: funny

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Whilst there are people on the sidelines like Buffett ready to swoop on the profitable muni business whilst they are hamstrung by the sub prime losses - it would make it impossible for the monolines to compete for new muni business and grow out of their problems. Meanwhile, if they left the muni bonds in place, there is a danger that these issuers will end up paying for insurance that they may never receive (if the monoline is bankrupted/downgraded as a result of mortgage defaults).

All in all, splitting them up is inevitable.

The monolines stay in business carrying out their traditional muni business.

The muni and state issuers continue to receive triple A ratings (and can rest assured that insurance they have paid for may actually be worth something).

And best of all, the banks get to pick up the tab for all the shit securities they've been spreading around with gay abandon.

This would imply the end of CDOs and SIVs as investment entities as there wont be a margin for the investors- about fracking time!

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WHAT did they think?

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Bond Insurer Split May Trigger Litigation, Bank of America Says

By Cecile Gutscher

Feb. 18 (Bloomberg) -- Regulators' plans to break up bond insurers into ``good'' businesses covering municipal debt and ``bad'' businesses liable to subprime-related losses may trigger ``years of litigation,'' Bank of America Corp. analysts said.

...

``The fact that one group of policy holders' exposures has imperiled the policies of the other does not mean they should forfeit the value of their claims altogether,'' the Bank of America analysts said.

If the plan went through, the word 'insurance' would get a whole new (hollow) meaning.

Edited by Goldfinger
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The fact that the regulator is even suggesting this shows how desperate the situation is.

This could have ramifications for the whole insurance industry if it goes ahead.

I could start an insurance company and after a year split it into a profitable and a non-profitable company. The non-profitable one would go belly up and I would make a fortune.

I could send a letter out saying:

"This is to inform you that your car insurance is now worthless as it is owned by a bankrupt comapany

ps. you can't cancel it either as the company has no money for refunds"

All investors around the world will lose confidence in American investments as America will have to create laws to allow this to happen.

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The fact that the regulator is even suggesting this shows how desperate the situation is.

This could have ramifications for the whole insurance industry if it goes ahead.

I could start an insurance company and after a year split it into a profitable and a non-profitable company. The non-profitable one would go belly up and I would make a fortune.

I could send a letter out saying:

"This is to inform you that your car insurance is now worthless as it is owned by a bankrupt comapany

ps. you can't cancel it either as the company has no money for refunds"

All investors around the world will lose confidence in American investments as America will have to create laws to allow this to happen.

Couldn't agree more.

Maybe, they will sort of get away with it. Creating years of work for lawyers.

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I love MarketTicker:

Rumor going around right now that....
Okay, you guys remember the conceptual split of FGIC & ABK (and any others) into a "Good Bank" and a "Bad Bank" (which was previously rumored to be immediately challenged in court by the banks which would be screwed by such a deal) NOW the word is....
That the banks which would be screwed by having their CDO's stuck with the insurance from the "Bad Bank," instead of tying it up in court for God knows how long....
The word NOW is that these banks are being offered equity in the "Good Bank" to make them "whole."
I have no idea how much equity, but presumably, it's a lot.
So, instead of the banks ONLY getting screwed by having their garbage insured by the Bad Banks, will accept this situation in exchange for being significant equity owners of the Good Banks.
This is actually what is being discussed right now behind closed doors in New York... although, I need to say, RUMOR ONLY.
Heh heh heh...
Spitzer and FGIC & ABK tried to end-run the banks, got threatened with "Instant Litigation," and will now end-up giving over to these same banks the very pieces that Buffett would have paid a significant amount of Jing for just a few days ago.
This means that FGIC & ABK shareholders are about to get turned and rolled.
MBIA, watch your back.
/just what I'm hearing....

And more:

Let me say again that this is just a rumor.
What I am hearing is that these conversations going on right now are extremely fluid -- they're not working from any kind of prepared outline, it's not like a Congressional Hearing with a script and a schedule -- they're making it up as they go along. It's just a small group of people trying to wrangle through a deal which will, 1. keep the whole thing out of court (by agreement of the Banks), and 2. Get the approval of Spitzer, while, 3. not stepping on very many toes of the people who have the Jurisdiction to regulate & enforce because their approval will be required in the end.
The way it'll work is that:
1. Banks will still have their crap covered by the close-to-worthless insurance offered by the bad bank.
2. They'll agree to not litigate, and in exchange for this they'll get equity in the Good Bank. They will also not have to show their balance sheets in a public courtroom where they will indeed become public record, which means that all the toxic garbage can remain hidden.
3. Current shareholders on FGIC & ABK and possibly others will get diluted badly as the banks get a large chunk of the ownership of the Good Bank(s).
4. To stop future shareholder actions here requires some regulatory approvals.
Apparently, FGIC & ABK management are okay with this -- ABK actually was the one who sought to break itself -- see the news stories now floating around there about this.
Again:
THIS IS RUMOR.
There is real pressure to get the Muni rates down NOW, and this is Spitzer's main concern (along with re-election).
RUMOR, folks.
That's all it is.

http://www.tickerforum.org/cgi-ticker/akcs-www?post=29584

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http://www.bloomberg.com/apps/news?pid=206...&refer=home

Ambac Soars on Report Bailout May Happen Next Week

...

Eight banks including Citigroup Inc. and UBS AG formed a group to consider providing financing, a person familiar with the matter said earlier this month. Royal Bank of Scotland Group Plc, Wachovia Corp., Barclays Plc, Societe Generale SA, BNP Paribas SA and Dresdner Bank AG, were also involved, said the person, who declined to be named because details hadn't been set.

Reads like a list of banks one should avoid 100%.

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http://www.bloomberg.com/apps/news?pid=206...&refer=home

Reads like a list of banks one should avoid 100%.

Bank takes out insurance with Company A. Company A is in danger of going bust as it sold the insurance too cheaply relative to the risk that it was taking on (basically it sucked at it's own business). Bank needs the insurance so it lends money to Company A to stop it going bust. Hmmm. These Banks need to hire some brighter people.

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Bank takes out insurance with Company A. Company A is in danger of going bust as it sold the insurance too cheaply relative to the risk that it was taking on (basically it sucked at it's own business). Bank needs the insurance so it lends money to Company A to stop it going bust. Hmmm. These Banks need to hire some brighter people.

Bank takes out insurance with Company A. Company A is in danger of going bust as it sold the insurance too cheaply relative to the risk that it was taking on (basically it sucked at it's own business). Bank can not afford A to go bust, since then there would be a bond collapse, and bank would go bust.

Therefore, bank lends money to Company A to stop it going bust. Hmmm.

Edited by Goldfinger
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apologies if this is old news

i didn't know that ambac had a uk subsidiary (AUK), they issue bonds for the likes of the London Underground.

who else do they insure?

do they insure local government debt as well as cdo stuff like they do in the US?

Edit to say:

S&P have just reaffirmed the AAA rating for AMBAC & MBIA.

:blink:

Edited by gfromls
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S&P takes MBIA, AMBAC off creditwatch laughable... why.....? Has something changed?

Not that I can see!

:ph34r:

Treasury Undersecretary just on bloomberg saying that the IMF should sell its gold, focus on "Exchange rate misalignments"...

That means the IMF is going to sell gold, buy the dollar..

This together with the AMBAC/MBIA news says one thing to me.. there will now be a concerted effort to prop up the dollar. I wonder, were S&P told to take these 2 insurers off credit watch? It smacks of some coherent action to me.

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S&P takes MBIA, AMBAC off creditwatch laughable... why.....? Has something changed?

Not that I can see!

:ph34r:

the only thing i can think of, is all this talk of a bail out from the big banks (barclays & RBS included????) ...said to be nearing completion.

but why did they feel the need?

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U.S. Stocks Gain, Led by Energy, Drug Shares; Ambac, MBIA Rise

Feb. 25 (Bloomberg) -- U.S. stocks staged their biggest rally this month after Standard & Poor's kept AAA debt ratings for the nation's largest bond insurers, easing concern credit losses will extend the worst earnings slump since 2001.

MBIA Inc. and Ambac Financial Group Inc., which rely on their top credit scores to guarantee $1.2 trillion in bonds, led gains in the S&P 500 Index and helped banks and insurers rebound from earlier losses. Exxon Mobil Corp. climbed the most in a month after natural gas prices advanced to a two-year high. Genentech Inc. posted its steepest gain in three years on federal approval to market Avastin for breast cancer.

The S&P 500 advanced 18.69 points, or 1.4 percent, to 1,371.8. The Dow Jones Industrial Average rose 189.2, or 1.5 percent, to 12,570.22. The Nasdaq Composite Index added 24.13, or 1.1 percent, to 2,327.48. Almost six stocks climbed for every one that fell on the New York Stock Exchange.

``People are breathing a sigh of relief and jumping back in again,'' said Peter Kovalski, who manages financial services stocks at Alpine Woods Capital Investors, which oversees $12 billion in Purchase, New York. ``All financials that would've been vulnerable to a meltdown in credit markets rebounded on this news.''

Financial companies in the S&P 500 lost money as a group in the fourth quarter and are projected to post profit declines through the first half of 2008, according to estimates compiled by Bloomberg. Their shares lost 6.4 percent this year, partly due to concern that insurance would lapse on bonds guaranteed by Ambac and MBIA.

MBIA, Ambac

MBIA climbed $2.40 to $14.58. Ambac rose $1.70 to $12.41. Financial shares in the S&P 500 gained 1.2 percent after earlier falling as much as 1.8 percent.

MBIA is no longer under review for a downgrade by Standard & Poor's, indicating the bond insurer is a step further away from losing its AAA insurance credit rating. Ambac, which ranks second to MBIA among bond insurers, is still being reviewed for a possible downgrade, S&P said.

``As long as the ratings are there, banks do not need to write down securities on their balance sheets that are guaranteed by Ambac and MBIA,'' said Anton Schutz, who manages $150 million at Mendon Capital Advisors in Rochester, New York.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

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