Let the finger pointing begin

AP
Bond Insurers to Blame Rating Agencies
Wednesday February 13, 7:04 pm ET Bond Insurers to Put Onus on Rating Agencies for Uncertainty

WASHINGTON (AP) -- The troubled bond insurance industry is being hobbled by uncertainty surrounding the credit rating process, Ambac Financial Group Inc. Chairman Michael A. Callen is expected to tell a U.S. House panel on Thursday.

"Ambac and the industry's next critical step is to restore confidence. This requires stable and predictable credit ratings," Callen says in prepared remarks to be delivered Thursday before the House Financial Services Subcommittee on Capital Markets.

Rival MBIA Inc. in its prepared testimony, takes a harsher tone. The company blames rating agencies for the current market disruption and suggests rating systems "may need to be revamped."

"Instability of decision making by the rating agencies has damaged the market's confidence in the financial guarantors, thereby destabilizing the broader financial markets," the testimony said.

The panel, chaired by Rep. Paul Kanjorski, D-Pa., is set to hear from a variety of industry participants and regulators, including Ambac, MBIA and New York Gov. Eliot Spitzer. At issue is the growing uncertainty surrounding the financial guaranty companies because of their decision to insure various securities backed by troubled mortgage loans.

Expected losses from those securities have raised doubts about the financial health of firms such as Ambac, leading to ratings reviews and downgrades from the major ratings agencies.

Callen said the problems facing bond insurers have been overstated. Ambac, he said, currently has the financial resources to "comfortably meet" all of its existing obligations, even under the most dire market conditions.

"Almost no one questions the ability of Ambac to make good on obligations to holders of Ambac guaranteed debt," Callen said.

Instead, he said the biggest challenge for Ambac is dealing with the uncertainty caused by rating agencies' decision to review their ratings on the company.

"We therefore see the current issues facing the financial guarantors not as a question of ability to meet obligations, but rather a challenge to maintain the stability of ratings that have supported our business in the past and that will support it going forward," Callen said.

MBIA's testimony suggests financial guaranty companies should have a seat at the table in redesigning rating agencies' credit rating systems.