Monoline Stock Price Rally Overdone
The recent rally in the stock prices of monoline insurers Ambac (NYSE: ABK) and MBIA (NYSE: MBI) is overdone, in CreditSights view. “While there is no denying there have been several positive developments, we think Ambac and MBIA are still far from back to where they were before the credit meltdown,” CreditSights says in a new Monoline Monitor report.
“In our opinion, the direction of the recent rally in major monoline securities may be justified but the magnitude of the shift seems premature.”
Perhaps the most positive development over the past month was when Ambac and MBIA had the AA financial strength ratings on their primary insurance subsidiaries removed from CreditWatch Negative by Standard & Poors. The rating agency’s outlook on both companies is negative. S&P said that the removal of the negative outlook for both companies will depend on clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.
“While the action does help reduce pessimism, the wording in the S&P release indicates that it believes both companies have likely impaired their franchise values, which will be problematic in jumpstarting their new subsidiary strategies.”
Hypothetically, if the regulators approve the recapitalization of Ambac’s and MBIA’s dormant subsidiaries and then if the agencies rate these subsidiaries at the triple-A insurance financial strength level, we just don’t know if there is any demand for their wraps in the first place.
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