Citigroup Inc., Merrill Lynch & Co. and UBS AG may post losses of $10 billion on bond insurance after MBIA Inc. and Ambac Financial Group Inc. lost their top credit ratings, Oppenheimer & Co. analyst Meredith Whitney said.
MBIA and Ambac, the world’s largest bond insurers, had their AAA ratings cut two levels by Standard & Poor’s June 5, which trimmed ratings on more than $1 trillion of securities they guaranteed. The downgrades may limit the so-called monoline insurers’ ability to write new policies, putting further pressure on earnings, she wrote today in a note to investors.
This is one of the biggest pieces of bad news to hit the markets, yet no one seems to be bothered!
MBIA and Ambac guarantee phenomenal amounts of muni bonds. The buyers of these bonds buy it on the AAA rating of the insurer rather than the issuer (who aren’t given AAA ratings for some obscure reason).
Either S&P and Moodys need to quickly upgrade municipal bonds to AAA or there will be a catastrophe in the muni bond market. Worse, this time the people who are affected are the pension funds, school funds etc. who hold these securities thinking they are AAA – without the AAA they must sell, and chances are that prices are going to be low with so much selling pressure.
Meaning, only people like you and I, in the US, will suffer. Jeezus. I hope there is some salvation and S&P/Moodys decide to quickly upgrade bonds – and if they do, their business is toast. This is the beginning of the end of either the bond insurers (MBIA/Ambac) or the ratings agencies (S&P/Moodys)
Subprime phase 3 is here.