Thursday, January 17, 2008
Monolines reaching the end of the line?
Monoline Insurers : Key to future write down numbers
At the moment bond insurers are having their credit ratings downgraded.This is of course having a knock on effect on the value of all the debt on Wall Street's balance sheet.
If you think the write downs by Citi and Merrill are bad now, don't be fooled.If MBIA,AMBAC or another one of these insurers goes bust,then everything they've ever insured is instantly worthless.Monoline insurers are used by investment banks to protect against default for their toxic debt tranches/packages.If the insurer fails,depending on the bank's exposure, the bank loses even more.It's lose lose all round.Cool or what.
One of my predictions for 2008 (See Jan 4 2008 blog below) was that a major US monoline insurer would go bust.AMBAC's credit rating was downgraded today,as a result it lost nearly half it's value at one point. If it/similar went under then the likelihood of a major Wall street house being tipped into Chapter 11 would be pretty much guaranteed in my opinion.Not to mention substantial mark downs in the stock price of the surviving ones.
This could be the next major development in the sub prime story,and has enormous entertainment potential.Can't wait.
Keep an eye on them.
RB
At the moment bond insurers are having their credit ratings downgraded.This is of course having a knock on effect on the value of all the debt on Wall Street's balance sheet.
If you think the write downs by Citi and Merrill are bad now, don't be fooled.If MBIA,AMBAC or another one of these insurers goes bust,then everything they've ever insured is instantly worthless.Monoline insurers are used by investment banks to protect against default for their toxic debt tranches/packages.If the insurer fails,depending on the bank's exposure, the bank loses even more.It's lose lose all round.Cool or what.
One of my predictions for 2008 (See Jan 4 2008 blog below) was that a major US monoline insurer would go bust.AMBAC's credit rating was downgraded today,as a result it lost nearly half it's value at one point. If it/similar went under then the likelihood of a major Wall street house being tipped into Chapter 11 would be pretty much guaranteed in my opinion.Not to mention substantial mark downs in the stock price of the surviving ones.
This could be the next major development in the sub prime story,and has enormous entertainment potential.Can't wait.
Keep an eye on them.
RB
