NEW YORK, May 16 (Reuters) - MBIA Inc and Ambac
Financial Group's bond insurance arms remain at risk of downgrade, though the loss of the top ratings would be unlikely to create the systemic meltdown that was previously feared,
Barclays Capital said.
MBIA and Ambac, also known as monolines, this month reported losses for the first quarter, weighed down by exposures to risky residential mortgage-backed debt.
"Over the past few months, the level of market interest in the monoline financial guarantors has waned appreciably," Barclays analyst Seth Glasser said in a report sent late on Thursday. However, "many individual insurers remain at
heightened risk of losing their AAA ratings."
The ratings of MBIA and Ambac's bond insurance arms were placed on review for downgrade in January by major U.S. rating agencies, sparking a broad sell-off in credit markets as investors fretted a downgrade would create large losses in municipal and other debt.
Moody's Investors Service and Standard & Poor's have since affirmed the ratings at "AAA." Moody's on Tuesday, however, said that incurred losses by the two companies are now "meaningfully higher" than it had expected, and raised concerns about their capital levels.
Moody's also noted that bond insurers have "significant exposure" to second-lien residential mortgage debt, which is
experiencing high loss rates.
"Clearly, the degree of future losses on these classes of deals, as well as those classes which have not yet experienced material ratings downside or collateral loss such as Alt-A, remains critical to whether the monolines will need to raise
additional capital," said Barclays Glasser.
Plunging prices of the companies' stock and hybrid bonds make it challenging for the insurers' to sell securities to raise capital and outside companies may be reluctant to invest, however.
"We find it increasingly possible that the monolines may not be able to raise the capital required to placate the rating agencies if they again make changes to their capital models in
the coming months," Glasser said.
Ambac spokeswoman Vandana Sharma said the company doesn't believe it will need to raise funds in the capital markets as it is accumulating a capital cushion from its existing business.
"We think that whatever (Moody's) view of the second-lien portfolio is we'll be able to meet it," she said.
MBIA spokesman Jim McCarthy said that the subprime second lien pools that are the subject of Moody's report are significantly different to those guaranteed by MBIA.
"We are comfortable with the loss reserves and stress analysis we reported to the market and believe we are well capitalized to satisfy all claims on our insured portfolio and
meet AAA requirements," he said.
SYSTEMIC IMPACT?
Fears that the downgrades could create systemic problems have subsided, though the impact would still be felt, said Glasser.
Investment banks have significant exposure to bond insurers, however the write downs would not be as large as losses banks are taking to mortgage bonds, Glasser said.
The municipal debt market would likely be affected by ratings downgrades, though months of uncertainty over the ratings has given issuers and investors time to prepare for the possibility, which would likely reduce the impact.
The impact could also be felt in the commercial paper markets, and potentially any downgrades may raise liquidity fears again in these markets, Glasser said.
However, "overall, we take the view that, should MBIA and Ambac get downgraded, the impact on the broader global financial markets would wind up being less significant than was feared six months ago," he added.
(Reporting by Karen Brettell; Editing by Chizu Nomiyama,)
((
karen.brettell@thomsonreuters.com; +1 646 223 6274; Reuters
Messaging:
karen.brettell.reuters.com@reuters.net ))
Keywords: BONDINSURERS BARCLAYS/
Enviado: 28/3/2013 21:54
