Buffett Offers to Assume Muni Liabilities of Insurers
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Buffett Offers to Assume Muni Liabilities of Insurers
Feb. 12 (Bloomberg) -- Billionaire investor Warren Buffett said he offered to assume responsibility for $800 billion of municipal bonds guaranteed by MBIA Inc., Ambac Financial Group Inc. and FGIC Corp.
Buffett's Berkshire Hathaway Inc. would put up $5 billion as part of the plan that would exclude subprime-related obligations. One company has already rebuffed the proposal and the two others haven't responded, Buffett told CNBC television.
Buffett is attempting to take advantage of the distress among bond insurers by picking off the profitable municipal guaranty business and leaving MBIA, Ambac and FGIC with debt that has caused more than $5 billion in losses. The three companies are struggling to maintain their AAA ratings after writedowns on the value of mortgage guarantees.
``If you gave up your entire municipal business, that's the book of business where the value in the companies is right now,'' said CreditSights Inc. analyst Robert Haines. ``You'd essentially be ceding that whole book to Buffett and what you'd be left with would be the book of business where all the troubles are.''
The bond insurers lend their AAA stamp to $2.4 trillion of debt, and are sitting on losses of as much as $41 billion, according to JPMorgan Chase & Co. analysts.
CDO Expansion
Armonk, New York-based MBIA, which started as the Municipal Bond Insurance Association in 1974, Ambac and FGIC are reeling from their expansion beyond guaranteeing municipal debt to collateralized debt obligations, which repackage assets such as mortgage bonds and buyout loans into new securities with varying risk. As the value of some CDOs plummet, ratings companies are pressing the insurers to add more capital.
``How deep that problem is, with the CDOs and other things, we can't figure it out,'' Buffett said.
MBIA, the largest bond insurer, rose 56 cents, or 4.1 percent, to $14.14 in early trading at 8:31 a.m. New York-based Ambac, the second largest, rose 52 cents, or 5 percent, to $11. Berkshire yesterday rose $1,550, or 1.1 percent, to $139,950.
FGIC is a closely held company owned in part by Blackstone Group LP and PMI Group Inc. PMI rose 33 cents, or 4 percent, to $8.60, and the Blackstone Group rose 6 cents, or less than a percent, to $17.84.
MBIA's AAA rating is being reviewed by Moody's Investors Service, Standard & Poor's and Fitch Ratings. Ambac had its AAA rating cut to AA by Fitch and is being scrutinized by Moody's and S&P. FGIC had its top rating cut to AA by Fitch and S&P and is being reviewed by Moody's.
`Stroke of a Pen'
Optima noticia para os mercados
If the municipal debt was reinsured by AAA rated Omaha, Nebraska-based Berkshire, the municipalities would also retain the top rating, Buffett said.
``The insurance in the market is not doing bondholders any good and is in some cases penalizing bond investors,'' Buffett said. ``Our proposal puts the municipals at the front of the line.''
The downgrade of a large bond insurer would force some insurers to sell any municipal debt that didn't have an underlying AAA rating.
``It would solve it in one stroke of a pen,'' Buffett said of the plan.
Buffett's Berkshire Hathaway Inc. would put up $5 billion as part of the plan that would exclude subprime-related obligations. One company has already rebuffed the proposal and the two others haven't responded, Buffett told CNBC television.
Buffett is attempting to take advantage of the distress among bond insurers by picking off the profitable municipal guaranty business and leaving MBIA, Ambac and FGIC with debt that has caused more than $5 billion in losses. The three companies are struggling to maintain their AAA ratings after writedowns on the value of mortgage guarantees.
``If you gave up your entire municipal business, that's the book of business where the value in the companies is right now,'' said CreditSights Inc. analyst Robert Haines. ``You'd essentially be ceding that whole book to Buffett and what you'd be left with would be the book of business where all the troubles are.''
The bond insurers lend their AAA stamp to $2.4 trillion of debt, and are sitting on losses of as much as $41 billion, according to JPMorgan Chase & Co. analysts.
CDO Expansion
Armonk, New York-based MBIA, which started as the Municipal Bond Insurance Association in 1974, Ambac and FGIC are reeling from their expansion beyond guaranteeing municipal debt to collateralized debt obligations, which repackage assets such as mortgage bonds and buyout loans into new securities with varying risk. As the value of some CDOs plummet, ratings companies are pressing the insurers to add more capital.
``How deep that problem is, with the CDOs and other things, we can't figure it out,'' Buffett said.
MBIA, the largest bond insurer, rose 56 cents, or 4.1 percent, to $14.14 in early trading at 8:31 a.m. New York-based Ambac, the second largest, rose 52 cents, or 5 percent, to $11. Berkshire yesterday rose $1,550, or 1.1 percent, to $139,950.
FGIC is a closely held company owned in part by Blackstone Group LP and PMI Group Inc. PMI rose 33 cents, or 4 percent, to $8.60, and the Blackstone Group rose 6 cents, or less than a percent, to $17.84.
MBIA's AAA rating is being reviewed by Moody's Investors Service, Standard & Poor's and Fitch Ratings. Ambac had its AAA rating cut to AA by Fitch and is being scrutinized by Moody's and S&P. FGIC had its top rating cut to AA by Fitch and S&P and is being reviewed by Moody's.
`Stroke of a Pen'
Optima noticia para os mercados
If the municipal debt was reinsured by AAA rated Omaha, Nebraska-based Berkshire, the municipalities would also retain the top rating, Buffett said.
``The insurance in the market is not doing bondholders any good and is in some cases penalizing bond investors,'' Buffett said. ``Our proposal puts the municipals at the front of the line.''
The downgrade of a large bond insurer would force some insurers to sell any municipal debt that didn't have an underlying AAA rating.
``It would solve it in one stroke of a pen,'' Buffett said of the plan.
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