MBIA (MBI) and Ambac (ABK) May Lose Inflated Credit Ratings

Banking, finance, and taxes

Published: May 14, 2008 4:20 am

Anyone who does not think that insurance regulators have done what they can to keep credit ratings high at Ambac (ABK) and MBIA (MBI) is a chump. With their tremendous losses and risk in their portfolios going forward, only a fool would rate them "Aaa"

The game could only last so long. According to Bloomberg. “meaningfully” higher losses on home-equity loans and collateralized debt obligations than anticipated, raising concern about their Aaa status, Moody’s Investors Service said.

So, why have the ratings agencies held back? To help protect against another huge round of write-downs at big banks. The news service adds "Banks also faced losses of $70 billion on the asset-backed debt, according to Oppenheimer & Co. analysts."

That means that downgrades to the muni-bond insurance companies could lead to the need for banks to raise more capital. That, in turn, will hammer shareholders in the institutions.

Douglas A. McIntyre

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