Forget everything else. This here is the most important development right now:
Ambac Will Cut Dividend, Raise $1 Billion in Capital (Update1): “Ambac Financial Group Inc., the second-largest bond insurer, will slash its dividend 67 percent and raise more than $1 billion in new capital to preserve its AAA credit rating.
Chief Executive Officer Robert Genader will be replaced after presiding over the New York-based company's first-ever loss last quarter, Ambac said in a statement today. The company said it will report another loss this quarter after writing down the value of securities it guarantees by $3.5 billion.
The infusion of capital, which may include the sale of shares and convertible stock, will satisfy ratings companies, Ambac said. Ambac follows MBIA Inc., the largest bond insurer, which cut its dividend last week and raised more than $2 billion in new capital. The loss of Ambac's AAA stamp would jeopardize ratings on $556 billion of bonds and threaten the company's ability to guarantee new issues.”
Its still isn’t even close to enough. Get up to speed on the ‘monoline insurers’.
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From Naked Capitalism:The Monoline/Credit Default Swap Nexus (Not for the Fainthearted): “After bond fund giant Pimco's Bill Gross gave a back-of-the-envelope estimate of a possible $250 billion in losses resulting from the impact of deteriorating corporate credit and bond defaults on the $45 trillion (notional amount) credit default swaps market, other commentators have been making improved (but still quick and dirty) calculations.
One interesting effort appears in today's Financial Times "The fire threatens credit insurance," by David Roche of Independent Strategy. Roche looks at a topic near and dear to our hearts, the impact of the just-about-inevitable downgrading of the monoline insurers. He focuses on them by working through the question: what happens if we start witnessing counterparty failure on top of mere required default payments? He sees the bond insurers like Ambac and MBIA as the most probable flash points, and the resulting damage in the ballpark of $400 billion.”
MBIA, Ambac: Dead Men Walking: “Ooof, I am in possession of a hefty and detailed presentation on MBIA and Ambac by an investor that is short the stock of the two holding companies. I believe it is kosher to summarize its findings, particularly since it is all derived from public information. And you probably didn't want to something that long anyhow.
It is one scary and persuasive document. The bottom line: there is no way these companies will survive. Their liabilities are so far in excess of their capital that there is no hope, nada.”
