Moody's Review of Insurers Saps Market Gains (MBI, ABK, MCO, MHP, BRK/A)

MBIA Inc. (NYSE: MBI) and AMBAC Financial Group Inc. (NYSE: ABK) are actually responsible for taking back some of today’s market gains.  Actually, it is Moody’s Corp. (NYSE: MCO) that is responsible for this.  Moody’s has placed the ratings of both bond insurers on review for a possible downgrade.

The truth is that even after those "Aaa" ratings to the "Aa" levels on growing concerns that their losses from mortgage-backed debt will be higher than expected and based upon the significantly constrained prospects for each of these to get new business.

Based upon how late to the party, how wrong the ratings were, and even how conflicted their models are… Every brokerage firm on Wall Street should just adopt the policy of dropping coverage on the independent ratings agencies like Moody’s (NYSE: MCO) and McGraw Hill (NYSE: MHP) for its S&P unit.  Shutting them out of the ratings agency game as far as Wall Street covering them would let the independent ratings agencies see how irrelevant they have become.  That won’t ever happen, but it would be an interesting battle to see.

This action from Moody’s today is a score for Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK.A) as the new bond insurer gets to cherry pick and charge higher rates to insure.

Jon C. Ogg
June 4, 2008