New York governor Eliot Spitzer has given monoline bond insurers up to five business days to find fresh capital, or face a potential break-up by state regulators who want to safeguard the municipal bond markets. The deadline was issued as Moody’s withdrew its triple-A credit rating for privately held Financial Guaranty Insurance Company, although positive comments elsewhere about MBIA and Ambac helped shares in these two listed insurers to recover somewhat on Thursday. New York regulators are considering a division of the bond insurers into a “good bank, bad bank” structure, where the monoline insurers’ municipal bond businesses would be separated from their riskier activities, such as guaranteeing complex structured securities.
Meanwhile, the losses from complex deals have pushed the cost of protection thrugh the CDS market to record highs.