The New York Observer’s profile of Bill Ackman, the founder of After Ackman shorted the stock and published “Is MBIA Triple A?” both the. Before the crisis, MBIA wrote credit derivatives on “Triple-A” tranches backed by mortgage loans and dodgy mezzanine CDOs. Bill Ackman. And it’s not just the fact of MBIA’s triple-A rating that drives Mr. Ackman batty; it’s its transcendent importance to the company’s business. As Gary.
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It also provides a fixed-income asset management service with about forty billion dollars under management.
Substantially all of these premiums are from structured finance guarantees. Your analysis makes the aggressive assumption that the bond insurers will remain going concerns and will therefore be able to continue to write new premiums and generate income in the future. It is headquartered in Purchase, New Yorkand as of January 1, had approximately employees.
Ackman’s Letter to Moody’s: A Must Read
Ackman reportedly attempted to warn regulators, rating agencies and investors about the bond insurers’ high risk business models.
The impact of the loss of these facilities is material to the liquidity profile of the holding companies and their insurance subsidiaries and must be considered in your credit assessment. While some commentators have suggested that this might create a pricing umbrella that will benefit the existing bond insurers, this is demonstrably false. You should receive assurances from MBIA and require it to contribute the full billion dollars to its insurance subsidiaries before you include the funds in calculating insurance company capital.
There is no other financial institution in the world which takes the present value of interest spread income on loans in its portfolio and adds it to its capital. Because the holding companies typically provide indemnities for employees and directors, we would expect that directors would be loathe to allow liquidity to leave the holding company estate, depriving directors and employees of the resources to protect themselves from claims. MBIA is a monoline insurer primarily of municipal bonds and on asset-backed securities and mortgage-backed securities.
Views Read Edit View history. We believe that the bond insurers and the rating agencies do not adequately consider the facts that: You should also carefully calculate the impact of a downgrade of the bonds held by one bond insurer that are guaranteed by other insurers in your calculation of capital adequacy.
MBIA: Triple-A Not What it Used to Be?
Retrieved February 22, Insurance claims must be paid in cash. You should adjust your estimate of CPR for each insurer to reflect the above factors in order to accurately establish the capital available to pay claims. This is best understood by example. That is, you reduce their credit exposure by those exposures that have been reinsured. The combination of volatility in each of these markets and the increased collateral demands required in holding company downgrade scenarios will put a severe strain on holding company liquidity.
A bond insurer is only able to obtain tax benefits if the insurer is a going concern and is able to generate sufficient taxable income in the current or future years to offset the losses from paid insurance claims. Net operating loss carryforwards are not cash and are not available to pay claims and should therefore not be deducted from losses in calculating bond insurer capital adequacy.
The liquidity risks of these programs and the underlying assets should be carefully examined. Retrieved February 26, National Public Finance Guarantee to A3″. Marty Whitman can call him what he wants, but the guy knows his stuff. Bond Insurer Ratings Ladies and Gentlemen: The company went public in Your updated rating assessments should be adjusted to exclude tax benefits in your calculation of capital adequacy 2 Covenant Violations and Loss of Access to Liquidity Facilities As a result of recent losses, both MBIA and Ambac have triggered covenant violations on their liquidity facilities.
From Wikipedia, the free encyclopedia. When MBIA did, in fact, crash as the financial crisis of came to a head, he sold the swaps for a large profit.
MBI Russell Component. Archived from the original on February 27, As you well know, depression lines of credit iss only be drawn to pay claims on municipal obligations and only after a substantial deductible.
Ackman’s Letter to Moody’s: A Must Read –
ackamn Captive reinsurers whose ratings are not regularly updated offer the potential for abuse. Each of you, according to your recent public statements, is in various stages of updating your ratings of the bond insurers. He was charged copying fees for copyingmbiia of statements regarding the financial services company, in his law firm’s compliance with a subpoena.
Retrieved from ” https: For all of the above reasons, we believe that the present value of future premiums should not be included in CPR. The MBIA surplus note issuance is perhaps the clearest example of the failure of the rating agencies to accurately assess the creditworthiness of a bond insurer.
Because Berkshire Hathaway already possesses a real Triple A rating, the bonds that are wrapped with its guarantee will trade with a tighter spread when compared to a bond insured by a traditional bond insurer, even one without legacy structured finance exposure. Languages Deutsch Edit links.
Various MTM programs also create liquidity risk as assets may have to be sold to meet redeeming bondholders.
In these circumstances, we would expect companies to seek bankruptcy as mbla means to protect the allocation of value among various stakeholders. Failing to consider the potential for losses in this portfolio in your calculation of capital adequacy is simply negligent. This page was last edited on 1 Julyat Todd Sullivan’s – ValuePlays. While Warburg has made affirmative statements about the transaction, both publicly as well as privately, to surplus note buyers and the media, we believe there continues to be transaction closure risk for both the initial stock purchase and future rights offering, with the rights offering having greater uncertainty.
Webarchive template wayback links. Financial insurance or Financial Guarantees are a form of credit iis. As usual, I triiple make myself available at your convenience. Lastly I encourage you to ask yourself the following question while looking at your image in the mirror: In that the losses are trkple primarily on structured finance obligations, these lines of credit should not be included in CPR The Capital Base included in CPR is also likely to be overstated because the investment assets of the bond insurers consist primarily of bond insurer guaranteed obligations that are valued inclusive of the guarantee, when they should be valued on an unwrapped basis.
Even in the event the bond insurers generate taxable income in future years, it may be many years before these tax benefits can be realized, if ever, particularly in the event of corporate ownership changes caused by capital raising or stockholder turnover. There is also no mechanism whereby the bond insurers can borrow against these potential future premiums to be used to pay claims in the present day.