How solvent are the bond insurers? A little less so as of today. From MBIA:
As a result of the downgrade to A2, MBIA expects that it will require $2.9 billion to satisfy potential termination payments under Guaranteed Investment Contracts (GICs). In addition, MBIA expects to be required to post approximately $4.5 billion in eligible collateral to satisfy potential collateral posting requirements under GIC’s as a result of the downgrade. MBIA Inc. has total assets of $25 billion related to its ALM business, of which $15.2 billion is available to satisfy these requirements including approximately $4.0 billion in cash and liquid short-term investments; $1.0 billion of unpledged eligible collateral on hand; and approximately $10.2 billion of other unpledged diversified securities with an average rating of Double-A. In addition, MBIA Inc. also has available another $1.4 billion in cash, including the proceeds of its recent equity offering.
Of particular significance is that final sentence. Looks like MBIA will have to downstream that $900m afterall. Vivat Smith.
How exactly are fears of bond insurer collapse playing out? Badly. A range of problems surfaced on Friday and over the weekend, all of which are likely to have a painful impact on the banks. Take your pick from…
Variable rate demand notes
$35bn of notes likely forced onto banks balance sheets as the market pulls back
Muni bonds
Benchmark yields soar to highest levels in four years
CDS contracts
Monolines are in talks to try and wipe out $125bn in insurance to avoid catastrophe
Banks and the credit markets are in for a turbulent week.
Related links
The end of MBIA and Ambac? - FT Alphaville
