NEW YORK (AP) -- Investors in the bond insurance industry could be forgiven for being confused on Friday.
In the course of a few hours, investor Wilbur Ross pumped $1 billion into Assured Guaranty Ltd., MBIA Inc. warned it will have to take more write-downs and Moody's said Ambac Financial Group Inc. has almost raised enough capital to keep its rating -- but not quite enough yet.
"We've gotten a lot of conflicting information this week and don't know how things will turn out," said Bob Nelson, a municipal market analyst at Thomson Financial.
Earlier this week MBIA saw its crucial "AAA" rating affirmed by Moody's, and Standard & Poor's affirmed both MBIA and Ambac's ratings. But many investors questioned whether the bond insurers actually have adequate capital, given their heavy exposure to subprime debt and the likelihood of new defaults on it.
"It looks like the ratings agencies just put their stamp of approval on MBIA and Ambac to give them more time to hunt for bailout money," said Mirko Mikelic, fixed-income portfolio manager at Fifth Third Asset Management.
Throughout the week investors kept their eyes on a joint public-private effort led by New York State Insurance Superintendent Eric Dinallo to secure billions of dollars for MBIA and Ambac. Hopes for a bailout announcement early in the week spurred some robust stock market rallies, as a rescue of the insurers would help banks and investors also exposed to subprime debt. But by week's end there was no rescue plan.
"I would give the bailout plan a 50 percent chance at this point," said Mikelic. "The devil is always in the details. And the problem is that the possible investors in it all have different agendas. How can they agree on how to make it work?"
Global banks involved in the talks like Citigroup Inc. and HSBC may merely aspire to protect their own capital adequacy by avoiding more subprime write-downs, he said. On the other hand, private investors generally invest only in ventures likely to earn them double-digits returns. It would be hard to structure an investment opportunity for investors with such divergent goals.
Meanwhile, deep-pockets investors like Ross and Warren Buffett so far appear interested mainly in the desirable municipal bond business. After announcing the Assured Guaranty investment Friday, Ross said that he would continue to participate in Dinallo's efforts to find capital for the insurers.
For his part, Buffett in January opened his own bond insurance company. That firm already has done insurance deals for municipal bonds in New York State and is seeking credentials to operate in other states.
Earlier in the year Buffett made an offer that would essentially have let him buy the desirable municipal bond insurance divisions of Ambac and MBIA while sticking them with their high-risk structured instruments side. Neither company leapt at an offer to let go of their traditional cash cow.
High levels of anxiety over the fate of the insurers led to numerous failures for short-term auction rate securities sales in February and drove municipal borrowing rates up to unheard-of levels. The damage even filtered into longer-term municipal bonds and corporate debt, stalwart asset classes generally held in high esteem by pension funds and other careful investors.
All this has investors longing of their usual savior, the government.
"It is hard to imagine a nongovernment entity having deep enough pocks to save the structured business," said T.J. Marta, fixed-income analyst at RBC Capital Markets. "And at this point I am not sure how you get out of this without a government bailout. I guess the government might step in yet, but they haven't yet."
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