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Saturday, March 08, 2008 3:52 PM


Amazing Action In Ambac, MBIA


Just when you think things with the monolines cannot get any crazier, they do. Let's start off with MBIA, but make sure you see the charts on Ambac that follow.

The New York Times is reporting MBIA, the Bond Insurer, Asks Fitch to Quit Rating Some Units.

The bond insurer MBIA Inc., which is facing a downgrade, asked Fitch Ratings on Friday to stop issuing credit ratings on its insurance units.

A spokesman, Willard Hill, said that MBIA disagreed with Fitch’s model for capital allocation.

Fitch says that MBIA should have more capital than required by S.& P. and Moody’s to support the asset-backed securities it guarantees, Mr. Hill said. That is “incompatible” with MBIA’s plans to separate the company’s businesses in the next five years, he said.

A rival to MBIA, the Ambac Financial Group, said that it had raised about $1.5 billion in a sale of shares and convertible units, more than doubling its stock outstanding in an effort to salvage its AAA credit rating.

The company sold shares at $6.75. The chief executive, Michael A. Callen; the chief financial officer, Sean T. Leonard; and other executives and directors bought shares at that price, according to regulatory filings. Ambac also issued $250 million of units convertible into shares.

While the sale will dilute the ownership of shareholders, the offering probably will be enough to convince Moody’s and S.& P. to affirm Ambac’s rating.

Shares in Ambac and the mortgage lender Thornburg Mortgage surged Friday after investors traded blocks of at least 10 million shares in the week’s final minute, according to Bloomberg data.

The transactions multiplied Ambac’s 4-cent gain for the day into a $2.08 increase, closing at $9.50, and turned a 24 percent drop for Thornburg into an 8.5 percent rally. The stocks rose on orders submitted by investors instructing brokerage firms to trade at least 10 million shares as near to the end of the day as possible, according to exchange data compiled by Bloomberg.
Good Ratings Only Please

If you do not like your rating, what the hell, ask not to be rated.

I like this solution actually, provided it would be carried to the logical conclusion: Moody's, Fitch, and the S&P should all lose government monopoly sponsorship. The big three rating agencies are clearly unqualified to rate anything. The conflicts of interest are stunning. They should all stop simultaneously.

We need to move away from a government sponsored monopoly to a system where rating agencies make money based the accuracy of their ratings. That would put the big three out of business in a flash (or cause them to do due diligence for a change).

I am also in favor of removing conflicts of interest that allow rating agencies to conduct other business with the companies they rate. It's Time To Break Up The Credit Rating Cartel.

Amazing Action In Ambac


In an effort to raise capital Amback made a $1.5 billion stock offering. I talked about this in Ambak "Bailout" Lands with Big Thud.

5 Minute Chart of the Action - Wednesday March 5



click on chart for sharper image.

By Friday Shares of Ambac fell as low as $6.50. Here is the action from Wednesday through Friday .

Ambac 5 Minute Chart Wednesday Through Friday Close



click on chart for sharper image

Hmm. Something does not seem quite right.
Oh. Excuse me I accidentally left off the last 2 hours of trading.
For that, let's zone in on a 1 minute chart, showing volume.

Ambac 1 Minute Chart - Friday March 8



click on chart for sharper image

Volume Totals
  • 2.8 million shares in last minute
  • 4.8 million shares in last 5 minutes
  • 7.1 million shares in last 10 minutes
  • 12.5 million shares in last 30 minutes
  • 86.1 million shares for the day
Close: $9.50
After Hours Quote: Bid 8.01 Ask 8.03

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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