The credit markets must be getting tired of watching the unthinkable happen. But when Fitch Ratings finally downgraded monoline insurer Ambac on January 18 it sent shock waves through the market that were reminiscent of the worst of the sub-prime crisis last summer. "The monolines now represent the biggest threat to the credit market – this will be sub-prime all over again," warns an investment banker.
The downgrade of a monoline has always been seen as an Armageddon prospect in the credit market – and one that many participants believed would never happen (see Monolines: Beyond protection, Euromoney, December 2007). The impact of Ambac’s downgrade on MBIA is plain to see (see chart) and confidence in their guarantees has evaporated fast.
|
MBIA equity and CDS levels |
|
|
Ambac equity and CDS levels |
|
|
Source: SG |
The sense of confusion and disarray in the monoline sector has been stoked by the rating agencies, which have repeatedly revised their loss assumptions and capital requirements for the insurers. Standard & Poor’s announced a further review of the entire sector in early January following changes to its methodology on US RMBS and CDOs. The result of this was that MBIA was required to put up an additional $340 million of capital and Ambac’s capital requirement rose from $1.85 billion to $2.255 billion. MBIA has a $2.5 billion capital plan in place (a combination of Warburg Pincus investment and reinsurance) but Ambac’s capital cushion was woefully short at about $1.6 billion.
You do not currently have access to this content. To gain access visit the subscription page or call our hotline on +44 (0)207 779 8999.
Are you already registered? If so, please enter your username and password here to continue.
Know your email address?
Click here for your password.
Questions about your subscription status?
Email us or call: +44 (0) 20 7779 8888
Subscribers to Euromoney benefit from:
- Exclusive access to euromoney.com - Read the latest issue early online, search for specific developments by region or sector, interrogate the results of Euromoney's benchmark polls, and view the archive dating back to 2000.
- 12 monthly issues of Euromoney magazine
- More than 30 specialist research guides free
- The results of Euromoney’s polls and surveys
Click here to subscribe