Fulldeck

More on TARP and the Insurance Industry

Can Dinallo take on Buffett?

For starters, here's Ambac's proposal to Treasury, presumably to be presented by Dinallo.

www.ambac.com/pdfs/Amb...

And as an owner of ABK debt (AKF/AKT), I hate to admit it, but these are the facts.

. Obama is more than likely to win the Presidency

. Warren Buffett is Obama's economic advisor

. Warren Buffett is no fan of Ambac-
www.iht.com/articles/2...

In fact, he started his own competing muni bond insurer-

en.wikipedia.org/wiki/...

. According to Gasparino's reportage on CNBC, the "re-insurance" part of the TARP would likely be months away.

. "Months away" puts us into Obama's presidency, or at least gives him significant say over TARP decisions while awaiting inauguration.

. Warren will have Barack's ear. Warren's Berkshire Hathaway Assurance would be relegated to an also-ran if Ambac's and MBIA's ratings were restored.

I also noticed that in the Congressional hearings with the NRSROs- (S&P, Moody's, and Fitch), Paul Sarbanes had a negative tone re helping the "monolines" after hearing Egan's testimony.

I think Ambac's proposal is a sound one, but I also think Dinallo will be facing a strong headwind.

All opinions appreciated.

Will TARP Cover Both Ambac and MBIA?

Correction to above- symbol FSC should be FSF. My apologies.

Will TARP Cover Both Ambac and MBIA?

Tom,

If you liked AKF and AKT, and it's hard not to to, at today's 25% plus increase (at the moment), plus our ongoing ~30% annual interest rate, you might want to look at similar debentures issued by Financial Security Assurance, a subsidiary of Dexia. FSA has been eating Ambac's lunch in the new muni bond issuance arena-

From a (linked below) Reuters article-

>>>"Although pricing has been strong, a shrinking municipal market, combined with the possible entry of new competitors, will likely pressure pricing in our view," S&P said.

Financial Security Assurance and Assured Guaranty Corp garnered the lion's share of the new issue market for municipal bond insurance, S&P said. FSA and AGC also insured a significant amount of secondary transactions, along with Berkshire Hathaway, the agency said.

For the first six months of the year, FSA wrote about $71.6 billion of public finance insurance, while Assured Guaranty wrote about $37.4 billion, according to S&P.

Berkshire Hathaway wrote about $16.5 billion, MBIA Insurance Corp about $7.2 billion and Ambac Assurance about $2.4 billion, S&P said.<<<

Reuters link-

www.reuters.com/articl...

FSA has three debenture issues-

FSB pays $1.72/year, currently selling in the low $5's
FSE pays $1.56/year, currently selling in the high $4's, and
FSC pays $1.40/year, currently selling in the mid $4's.

And here's the Prospectus supplement for FSE (I'd welcome seeing the others from someone who can find them)-

www.fsa.com/system/sec...

Of course, a return like this doesn't come without risk;,specifically, Fitch, who Ambac and MBIA fired recently "...(placed the) AA Rating of Financial Security Assurance Holdings Ltd. and AAA Rating of
Financial Security Assurance Inc. on Rating Watch Negative" on October 9. Here's FSA's response-

www.fsa.com/system/pre...

And parent company Dexia's comment-

www.dexia.com/e/news/p...

Even if Fitch goes through with the downgrade, it would likely leave FSA in a stronger position (IMHO) than Ambac.

I'm sure YOU would do your own due diligence, Tom, but I STRONGLY urge anyone else interested in these issues to do so also. With reward comes risk!

Will TARP Cover Both Ambac and MBIA?

You'll notice that Ambac removed their "Perspectives" article this morning-

www.ambac.com/pdfs/ABK...

'nuff said.

Will TARP Cover Both Ambac and MBIA?

From the WSJ-
online.wsj.com/article...

So much for the Troubled Asset Relief Program. And so much for the Perspectives article on the Ambac site.

I doubt the author, Selvaggio. even read the bill. With today's morph of the program, $250B is injected directly into 9 major banks (not to buy their troubled assets), and another $125B will go to a slew of other banks- essentially, a first step toward bank nationalization. So HALF of the already insufficient money that was to be available to buy "troubled assets" is already gone. And the rest is earmarked for various congressional goodies, e.g., expanded deposit insurance, mortgage bailouts, interbank loan guarantees and on and on.

An argument can be made that this is a helpful solution, Time will tell. But its direct benefit to the monolines is now even more opaque. The line of "ifs" that need to happen before bond insurers are aided is even longer.

I own Ambac via the debentures. I can't see any good reason to own the common in this environment (see my reasons above),

I'ts deceptive and self-defeating, however, to pump articles like Ambac's Perspectives or Dinallo's supposed guesses, reality be damned. The TOTALLY NEW TARP (it needs a new acronym) may eventually help Ambac or it may not. But the road to that point is now decidedly foggier.

And the TARP is no longer a TARP... maybe some sort of a fishing net- with holes in it, but definitely not a TARP.

Will TARP Cover Both Ambac and MBIA?

re the Ambac "Perspectives" article-

www.ambac.com/pdfs/ABK...

I find it naive at best; totally self-serving, deceptive, and transparent at worst.

Paulson's plan was meant to QUICKLY instill confidence in the credit market, without anyone looking into the details. Maybe if he were to have been allowed to do that QUICKLY, it would have helped. But it would have been a psychological cure, not a true financial one.

Unfortunately (or fortunately, if the specter of one man wielding all that unfettered power bothers you), he was not allowed to act quickly. Congress had to get its financially ignorant smell all over it, thereby losing the psychological impact of quick action, and adding loopholes and time-consuming, albeit perhaps necessary regulation.

Now, if the Treasury spends the full $750 billion buying securities at "marked to maturity" value, it would only have enough money to inject significant capital into a few institutions. Yet, if it buys them at fire-sale prices, it would inject INSUFFICIENT capital into a broad range of institutions.

John Markman had an interesting article, (link below)-

>>>Loopholes in a 'joke' bailout
Emilio knows all about the intersection of fear, lies and action. He worked as an energy trader for Enron back in the day, and lived to tell the tale. He now trades gasoline futures for a major refiner, and he chuckled at the spectacle of legislators appearing to believe they were stanching the credit crisis with their vote. "If you really read the bill, and understand how it will be interpreted, it's the scariest thing you ever saw," said the trader, who asked me not to use his real name. "These guys have no idea what they're unleashing."

Emilio knows, because he learned from the master manipulators at Enron. For an example, he said, check out Section 113 of the bailout bill, titled "Minimization of long-term costs and maximization of benefits for taxpayers." This is the section that Congress haggled into the bill to ensure a payoff, via warrants, for citizens if mortgages purchased from banks are later sold for a profit. Yet Emilio says bank lobbyists snookered the government by sneaking in an exception under subsection 3a, "Conditions on purchase authority for warrants and debt instruments." The clause, titled "Exceptions -- De Minimis," states that any debt instruments worth less than $100 million won't trigger the payback provision.
Emilio says that banks will simply issue their debt in tranches of $99 million or less, and avoid allowing the government -- and thus taxpayers -- to get a piece of the banks' profits. "It's a joke," he scoffed.

Other traders who scanned the bill came to the same conclusion, through their own prisms, agreeing that the bill would provide only an illusion of action while failing to address the key problems facing the financial system: Too many houses will remain on the market; they were bought with too much leverage that is vaporizing in spurts; and those losses have left banks with too little capital from which they can lend.

Even worse, the traders pointed out, the government can make money on the loans only if it pays so little for them that they can be sold at a much higher price. And yet if the government doesn't pay enough, then the banks won't receive enough to make a difference in their balance sheets. So here's how the taxpayers will be cheated, they said: Banks will take advantage of the suspension of mark-to-market accounting by stating that loans originally held at "par," or the equivalent of the purchase price, and now valued by the market at 20 cents on the dollar, will really be worth 85 cents if held until the loan matures. The banks will then sell the loans to the government at a fake discount of 75 cents on the dollar.

"The lobbyists made sure this bill was rammed through so that these rip-offs couldn't be fixed in committee," said another trader. "Everyone on the Street knows it solves nothing."<<<

articles.moneycentral....

While I'd love to believe Ambac's "Perspective", I think they will have to look elsewhere for their White Knight. And the author, Robert Selvaggio, should (does?) know better. The article is a disservice to the community of Ambac investors that want honest talk, not "feel-good" analyses.

Perhaps it should have been titled "Deceptives".

FD

Will TARP Cover Both Ambac and MBIA?

Redone SEC link-

www.secinfo.com/$/SEC/Filings.asp?AN=...

Will TARP Cover Both Ambac and MBIA?

From glassbox-

"I did check up their debentures before. They are very very illiquid and very hard to get at. The float is small to - I believe its not even US$300MM in total isze. In fact, I was looking for bonds of bond insurers to buy earlier this year as I was concerned about dilution risk. And this led me to realise that the bond insurers are not funded by borrowings but rather by equity - quite a difference from all the bond and preferred offerings we have seen issued by the other financials."

You are correct that AKT/AKF are thinly traded- somewhere around 45K shares/day over the last ten days. So it's probably not appropriate for the day or short-term swing trader.

For the longer term investor, however, the lower volume can lead to a low bid being filled more readily, presumably by a "forced-sell" investor or some such distress situation. I've caught a few myself. Also notable, the coupon payments are interest, not dividends, and as such are subject to higher taxes. On the other hand, the company cannot reduce the payments (as they have with dividends), currently in the 30% annual yield range.

Further, in a bankruptcy situation, AKT/AKF are classed as "general creditors", to the best of my understanding reading online SEC documents, specifically-

"The form of the indenture has been filed as an exhibit to the registration statement and you should read the indenture for provisions that may be important to you. General The debt securities will be our direct unsecured general obligations. The debt securities will rank equally with all of our other debt. Because we are a holding company, our rights and the rights of our creditors, including the holders of debt securities, to participate in the assets of any subsidiary upon its liquidation or recapitalization will be subject to the prior claims of the subsidiary’s creditors, except to the extent that we may ourself be a creditor with recognized claims against the subsidiary. A prospectus supplement relating to any series of debt securities being offered will include specific terms relating to the offering. "

Link-
www.secinfo.com/$/SEC/Filings.asp?AN=...

I have requested the full prospectus to confirm this, but have not yet received it. I STRONGLY urge anyone interested in AKT/AKF to DO THEIR OWN DUE DILIGENCE!

Press release links from Ambac-

AKF- www.ambac.com/Press/Pr...
AKT- www.ambac.com/Press/Pr...

As for "user 275784"s question, the difference in prices seems to be more a result of the thinly traded market than the minimal difference in yield.

This is just my cursory analysis of these securities. I welcome any further clarification.

Will TARP Cover Both Ambac and MBIA?

Exactly. And, as if all that isn't enough, it avoids the risk of a sale/merger at fire-sale prices. The debentures would still have to be honored.

Will TARP Cover Both Ambac and MBIA?

Tom-
If you're that bullish, i.e. ABK to $15, why wouldn't you rather buy their 100-year debentures- AKF and AKT? That are now selling at $5-ish, yielding in the 30% range, have a call value of $25, and would be senior to the common in a (brrr..) bankruptcy! They have the same 5-bagger potential, more safety, and pay 30% while you're waiting!

Need for Student Loans Should Boost First Marblehead Stock

Ummm... that would be "condescending", not "condensending". No need to thank me. (Hey, cap'n!)
FD