The crisis of confidence surrounding the credit worthiness of bond insurers deepened on Thursday after MBIA revealed larger-than-expected exposure to complex bonds linked to faulty mortgages. Shares in MBIA, which guarantees payments on almost $700bn of debt, fell 26% to below $20 after the details emerged late Wednesday on the insurer’s website. Fitch added pressure by warning it could cut MBIA’s triple-A rating unless it raised $1bn in capital in the next 4-6 weeks. MBIA, the largest of the monoline insurers, said its total exposure to bonds backed by mortgages and CDOs was about $30.61bn, including exposure of about $8.14bn to CDOs backed by a combination of other CDOs and mortgages (so-called CDOs-squared). When an insurer delicately refers to “supplementing” its list of CDO exposures, “that can only be bad news”, says Lex. In MBIA’s case, it is. A downgrade would hit all securities that MBIA insures, including the vast municipal market – and affect most credit market participants. Separately, FT Alphaville looks at the downgrade of ACA, a smaller bond insurer.

This entry was posted by Gwen Robinson on Friday, December 21st, 2007 at 5:47 and is filed under Capital markets. Edit this entry.