Monoline Madness Continues

by StockJockey

Tuesday, February 05, 2008 - 9:31 am

The confusion over the monoline insurers shows no signs of ending. Wilbur Ross is still being coy over his intentions, although we appreciate his attempt at playing a modern day version of J.P. Morgan.

"We're looking at several of the credit insurers and we hope to come to a conclusion, one way or another, very shortly," Ross said, noting he'd signed confidentiality agreements with several.....Ross has said he anticipates that problems with monoline bond insurers will likely come to a head within the next month or two. CNBC

Lots of numbers are being thrown around, both supersize and petite. Last week Meredith Whitney commented:

“Among the myriad of negatives that surround financial stocks today, we see no issue more critical than the fate of the monoline [bond] insurers,” Ms. Whitney wrote in a research note. “The fate of the monoline insurers is of paramount importance to financial stocks, as further downgrades of major monoline insurers by the rating agencies could put another $100 billion in assets held by banks in jeopardy of further write-downs,” she said.

Morgan Stanley fired back yesterday, throwing cold water on the doomsayers:

Some analysts have said they believe U.S. financial institutions exposed to the bond insurers are facing as much as $50 billion to $70 billion in losses, but Greg Peters, Morgan Stanley’s lead credit analyst, said he views exposures as significantly lower.

“That (number) seems too high to us to begin with, and that is a gross number,” he said on Monday on a conference call.....Once the capacity of the bond insurers to pay out claims is taken into account, and assuming that a bankruptcy does not force the insurance arms of the companies out of business, likely losses by banks are in the $5 billion to $7 billion range, Peters said. Reuters

Standing aside is not everyone’s cup of tea, but might make more sense than gaming the mood swings. Picking a number that suits your book or exposure might make you feel better, but could lead to a nasty surprise.

Bank losses from monolines seen up to $7 billion: analyst
Reuters

Ross to Decide Soon on Insurer Investment
CNBC

MBIA, Ambac Downgrades May Lead to Bank Rating Cuts, S&P Says
Bloomberg