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MBIA, Ambac Downgrades May Cost Market $200 Billion
MBIA, Ambac Downgrades May Cost Market $200 Billion (Update1)
By Christine Richard and Cecile Gutscher
Nov. 15 (Bloomberg) -- The crisis of confidence in bond insurers that bestow top credit ratings on debt sold by borrowers from the New York Yankees to Citigroup Inc. may cost investors as much as $200 billion.
The AAA ratings of MBIA Inc., Ambac Financial Group Inc. and their five smaller competitors are being reviewed by Moody's Investors Service and Fitch Ratings. Without guarantees, $2.4 trillion of bonds may fall in value and some issuers would get shut out of the capital markets.
``We shudder to think of the ramifications,'' said Greg Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest U.S. securities firm by market value. ``You have politicians, taxpayers, municipalities, states. It just opens up a Pandora's box. That is a huge destabilizing force.''
For more than 20 years, the safety of insurance has eased the way for elementary schools, Wall Street banks and thousands of municipalities to sell debt with unquestioned credit quality. Now, mounting downgrades on insured bonds backed by assets such as mortgages are raising doubts about the stability of the guarantors. Armonk, New York-based MBIA, the world's largest, has a 28 percent probability of default, and Ambac's is 40 percent, prices of derivatives show.
Moody's and Fitch, both based in New York, are examining the insurers on concern that a slide in the credit quality of some of the 80,000 securities they guarantee has eroded their capital so much that they no longer deserve AAA ratings.
MBIA, Ambac Downgrades May Cost Market $200 Billion (Update1)
By Christine Richard and Cecile Gutscher
Nov. 15 (Bloomberg) -- The crisis of confidence in bond insurers that bestow top credit ratings on debt sold by borrowers from the New York Yankees to Citigroup Inc. may cost investors as much as $200 billion.
The AAA ratings of MBIA Inc., Ambac Financial Group Inc. and their five smaller competitors are being reviewed by Moody's Investors Service and Fitch Ratings. Without guarantees, $2.4 trillion of bonds may fall in value and some issuers would get shut out of the capital markets.
``We shudder to think of the ramifications,'' said Greg Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest U.S. securities firm by market value. ``You have politicians, taxpayers, municipalities, states. It just opens up a Pandora's box. That is a huge destabilizing force.''
For more than 20 years, the safety of insurance has eased the way for elementary schools, Wall Street banks and thousands of municipalities to sell debt with unquestioned credit quality. Now, mounting downgrades on insured bonds backed by assets such as mortgages are raising doubts about the stability of the guarantors. Armonk, New York-based MBIA, the world's largest, has a 28 percent probability of default, and Ambac's is 40 percent, prices of derivatives show.
Moody's and Fitch, both based in New York, are examining the insurers on concern that a slide in the credit quality of some of the 80,000 securities they guarantee has eroded their capital so much that they no longer deserve AAA ratings.
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