Posts filed under “M&A”

Monoline Insurance: There’s a New Sheriff in Town…

The monoline insurers — the firms that issued default insurance on muni bonds that never default — have been buried by more than a trillion dollars worth of derivative bets, more than 10% of which have gone bad.

That $130 Billion worth of CDO/CDS exposure makes it highly unlikely that anyone is coming along to rescue this group of risk-loving, derivative-misunderestimating, technically-bankrupt insurance managers. As we mentioned saeveral weeks ago, 

While absurd rumors swirled around the unlikely purchase of Ambac (ABK) by Wilbur Ross, various other  forces have been moving to make sure that the bond assurance will continue to exist for various state and city projects. Even though Munis very rarely default, the cost of Bond Assurance ends up paying for itself many times over, as it allows cities and towns to pay significantly less in borrowing costs over the life of the bond issuance.

As we mentioned several weeks ago, that was a lovely, low risk business, with little defaults and a steady
revenue stream. At one point in time, AMBAC had the highest revenue per
employee on the planet.

That situation was obviously intolerable, and so managment embraced riskier, higher yielding derivatives. Over that period, the monoline stocks have lost about 90% of their value. (Ouch!)

The latest rumor making the rounds is that Wilbur Ross will buy Ambac. Reports that Ross will invest in the battered bond insurer Ambac have soothed investors. But as Roddy Boyd argues, the deal makes no sense whatsoever:

"If Ross were to purchase Ambac in an
"as-is" arrangement, he would be buying an enterprise with a staggering
$67 billion in CDO exposure, of which $29.1 billion consists of
asset-backed CDO’s of increasingly dubious credit quality. The company
also has $8.4 billion in sub-prime mortgage paper in its portfolio. All
told, Ambac’s financials show that the insurer has $14.5 billion of
claims-paying resources to support a $524 billion guarantee portfolio,
figures so unbalanced that the company’s attempt to raise $1 billion or
more in emergency capital via an equity or convertible offering had to
be scrapped last week."

Now, with the monolines bouncing on the highly unlikely take out by Wilbur Ross, a new sheriff has come to town: Warren Buffett has "agreed" to expand Berkshire’s new bond insurer nationwide — in exchange for
faster licensing — according to a group of U.S. state regulators.

In order to come into one of the most profitable and mismanaged segments of insurance underwriting, Buffett has coyly struck a deal that fast-tracks the messiest part of the business. Now THAT’S bloody brilliant.

Here’s Bloomberg’s take on the matter:

"Cathy Weatherford, chief executive officer of the National Association of Insurance Commissioners, on Jan. 10 offered to help speed approvals if Buffett’s new company agreed to simultaneously apply to all states with a uniform application, NAIC spokesman Scott Holeman said today. "Berkshire has committed,” Holeman said in an interview.

Berkshire’s bond insurer may help stabilize debt markets, which have been roiled by the prospect that MBIA Inc. and Ambac Financial Group Inc., the industry’s biggest guarantors, may lose their top credit rankings. A downgrade may affect $2.4 trillion in assets industrywide, and Fitch has already stripped its AAA rating from Ambac after losses tied to subprime loans.

To induce Omaha, Nebraska-based Berkshire to submit the application to all states, NAIC proposed a pilot program waiving a requirement that an insurer using a uniform application have a track record in the type of insurance for which it wants new licenses, Holeman said.

I was originally going to title this "Buffett to Wilbur Ross: Up Yours" but I thought that too harsh.  And Ross seems to smart to buy into the Ambacv/MBIA snake oil . . .



Counter-Party Risk
Friday, January 18, 2008 | 07:30 AM

A Regulator Not Stymied by Red Tape
NYT,  January 9, 2008


Has Wilbur Ross lost his mind?
Roddy Boyd
Fortune, January 25 2008: 4:19 PM EST

Buffett’s Bond Insurer to Go National, Regulators Say
Josh P. Hamilton
Bloomberg, Jan. 28 2008

Category: Corporate Management, Credit, Derivatives, M&A, Valuation

BoA in Talks to Buy CountryWide Financial

Category: Corporate Management, M&A, Trading

Possible Improbables

Category: Commodities, Currency, Economy, Federal Reserve, Investing, M&A, Markets, Politics

New Business Model: Launch New Sites to Annoy/Sell to Apple

Category: Corporate Management, M&A, Technology, Web/Tech, Weblogs

Biggest M&A Year in History

Category: Corporate Management, M&A, Markets

Buffett Sell Signal

Category: Corporate Management, Financial Press, M&A, Psychology, Trading

Buffett to Buy Bear? Bull$%*# !

Category: Corporate Management, Derivatives, Financial Press, M&A, Valuation

New Project(s)

What a crazy week — and the market is the least of it!

We moved from our old space on Park Avenue & 49th (across from
the Waldorf) to larger quarters a few blocks over on 5th Avenue. I have been switching back and forth between Starbux and Bryant Park for internet access (and posting less because I have been out of the office more than in). The
furniture is in, the phones are hooked up, and tomorrow, rumor has it
Verizon will light us up with a big fat pipe, connecting us to that
series of tubes.

But what’s been really odd is that a dozen seperate projects I have been working on for a few years now — some big, some small, all eclectic — have practically all-at-once, simultaneously, lurched towards fruition.

These include:

A major media project

I may join a new BoD

A fun little web project (its potentially very, very funny)

A significant quant application (this is a very powerful tool)

A brand new video venture

Two fascinating blog related advertising concepts

An expansion of an earlier book blogging idea

A new private equity fund 

And that was just this week!

We will discuss more about these in the coming weeks; Just about all of them have a market/stock/economic component to them. I’ll keep you up to speed with these as they develop.

I expect/hope that at least 3 of these 7 close before Halloween. . .

Category: Digital Media, Hedge Funds, M&A, Video, Weblogs

E*Trade/TD Ameritrade?

Category: Corporate Management, Investing, M&A, Trading

Credit-Market Tremors

Category: Credit, Derivatives, Finance, M&A, Markets