MBIA and Ambac Stocks Fall as Buffett Announces Establishment of Rival Bond Insurer
Amidst the news that Warren Buffett is starting a rival company to guarantee municipal debt, the two largest bond insurers, MBIA Inc. and Ambac Financial Group Inc., fell in New York Stock Exchange trading.
MBIA, based in Armonk, New York, fell as much as 10 percent and Ambac dropped 7.8 percent. Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., told the Wall Street Journal his bond insurer opens for business today in New York State. David Neustadt, a spokesman for the New York State Insurance Department, said Berkshire will receive a license by Dec. 31.
Buffett, who said in October he was looking for investments to absorb $45 billion of cash, is challenging the bond insurers as they struggle to retain the AAA credit ratings that allow them to guarantee $1.2 trillion of municipal bonds. The rankings of MBIA, Ambac and other so-called monolines are under scrutiny amid concern they don't have enough capital relative to the debt they insure.
"The monolines are hurting so now is a good time for Buffett to be getting into the market,'' said Matthew Maxwell, a London-based credit analyst at Calyon, the investment banking unit of Credit Agricole SA.
"Investors might feel more comfortable investing in bonds insured by Buffett than those backed by an insurer with the legacy of the credit crisis hanging over them.''
Published on December 28, 2007
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