Bond Insurer Downgrade Coming Soon?

CNBC is reporting time is running out for the bond insurers.  At least one of the rates could make an announcement today.

 

Downgrades could cost banks to writedowns of another $75 billion.

 

The decision by the big ratings agencies, Moody's, Standard & Poor's and Fitch is imminent, and at least one of the raters could make an announcement sometime today.

 

As reported on CNBC, Dinallo is working on separate plans with consortiums of bank that may infuse capital and provide lines of credit to sure-up the bond rating businesses at FGIC and Ambac and prevent downgrades. MBIA recently raised several billion dollars in new capital from Warburg Pincus.

 

But analysts are increasingly skeptical that even with the infusion of cash downgrades can be avoided because of the massive losses the insurers might take on their coverage of CDOs and other bonds that are packed with depressed subprime loans. As evidence, they point to recent management changes at MBIA and other moves; just yesterday, MBIA announced that wants to split its municipal bond business to shield it from the losses on its business of insuring CDOs. The move is being seen as a way to placate regulators and bond raters as a decision nears.