MBIA Tanks On Moody's Warning

Shares of monoline insurer MBIA (MBI) fell 16% to close at $27.42 Wednesday -- its worst drop in over twenty years -- after Moody's Investor Service said the company's AAA rating could be threatened by a greater-than-forecast risk of capital shortage. The company is now trading at a seven-year low. "The guarantor is at greater risk of exhibiting a capital shortfall than previously communicated," Moody's said. "We now consider this somewhat likely." The loss of the AAA rating could have a ripple effect on the $652 billion worth of state, municipal and structured finance bonds guaranteed by MBIA. Moody's is conducting a review of seven AAA-rated guarantors that is expected to be completed within two weeks. The firm is forecasting that in addition to MBIA, Ambac (ABK), Financial Guaranty Insurance, and Security Capital Assurance (SCA) are also "somewhat likely" to suffer a capital shortfall. Ambac fell 8.9% to $23.52 Wednesday; Security Capital fell 9.3% to $6.67. "It's Moody's firing a warning shot saying 'you have two weeks, so do something,'" said Paul Berliner of Schottenfeld Group. "The drama behind MBIA and Ambac should be the most important focus for the entire financial sector right now."

Sources: Bloomberg, Dow Jones, TheStreet.com
Additional reading: Pershing's Ackman: MBIA and Ambac Could Be Belly-Up By Q2 2008

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

Comments

[Lisa]

It's amazing how late and incompetent Moody's have been with this downgrade, given that Ackman and others have been predicting a blow-up for months. Just look at the articles on this site under the ticker MBI. You've been publishing bearish articles since July:

seekingalpha.com/symbo...

2007 Dec 06 06:45 AM