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The end of the monoline? Monoline insurers contemplating bleak future

The huge growth in products and sophistication in global credit markets has been a boon for almost all participants – with one notable exception. Monoline insurers are contemplating a bleak future in the face of changing issuer and investor attitudes towards credit risk. Even their great hope – a return of risk with a turn of the credit cycle – might not be enough to save some of them. Louise Bowman reports.

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“Normally, the willingness of the monolines to go long-term means that they are cheaper for long-term funding. But the banks have been pushing the envelope on tenors and prices so this is simply not the case any more”

OH, HOW QUICKLY they forget. Having nursed several of the largest structured finance markets through their formative years, the monoline guaranty insurance industry is now having to come to grips with the fact that, in many cases, these issuers simply do not need them any more. They never visit, they never call – like a neglected parent with an empty postbag at Christmas, the monolines have been relegated to the attic of the booming structured finance market. But as any student who has blown his overdraft on too much high living knows, there is a chance that at some stage there will need to be a call home to ask for some much-needed credit enhancement. And as far as the over-leveraged and over-extended credit market is concerned, the monolines are standing by the phone, tapping their feet, just waiting to take that "I told you so" call.

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