Posted on 06/15/2008 7:11:48 AM PDT by TigerLikesRooster
AP
Ackman: Bond insurers need another downgrade
Wednesday June 11, 4:30 pm ET
By Joe Bel Bruno, AP Business Writer
Activist hedge fund manager Ackman says more downgrades are needed for MBIA, Ambac
NEW YORK (AP) -- William Ackman, the billionaire activist hedge fund manager, said Wednesday that the recent downgrades of bond insurers and other financials might not have gone far enough.
The founder of Pershing Square Capital Management, who is open about shorting bond insurers such as MBIA Inc., said rating agencies need to dig deeper into the companies to get a better idea of what is on their balance sheets. Last week, Standard & Poor's Corp. cut the two monoline insurers to a double-A rating, while Moody's Investors Service put both companies on review for a possible downgrade.
"I think the rating agencies got it wrong with the bond insurers, and I think they overstated other financial institutions with very high credit ratings," Ackman told reporters on the sidelines of a conference in New York. "The rating agencies continue to be a problem."
He pointed out that both Moody's and S&P reaffirmed their triple-A ratings on MBIA Corp. and Ambac Financial Group Inc., and that conditions have only gotten worse since then. Both companies ran into trouble when they revamped their businesses to insure structured credit instruments -- like mortgage-backed securities -- that all but collapsed amid the global credit crisis.
Ackman has been public about betting the companies' shares will fall and has been critical of how they are run. He testified before Congress earlier this year, telling lawmakers that a bailout of the industry would be a wrong move.
Both MBIA and Ambac have been raising capital during the past few months to help shore up their balance sheets. MBIA has raised more than $2.6 billion in debt and equity this year, while Ambac has raised $1.5 billion in capital since March.
Both companies have been trading at record lows since the latest round of downgrades. MBIA fell 10 cents, or 2 percent, to $4.91 on Wednesday, while Ambac rose 3 cents to $1.90.
Ping!
I don't have a set, informed position on whether the current monoline rating is still too high but come ON. Why does this guy get away with this? Can I take massive shorts in (oh, I don't know) dishwasher detergent companies, call a reporter and assert they should be downgraded, watch them get downgraded, and repeat? Why not, if this guy gets to do it?
He might be right, though, his conflict of interest notwithstanding.
I agree, he does have a conflict but he has been very upfront and detailed in explaining his rationale and analysis for years. The monolines themselves, however, have been opaque and reluctant to give any details into their methodology. My money would be on Ackman.
Many pension funds buy fixed income instruments based on the guarantee that they are "insured" by one of these two firms, and must sell those same instruments under the terms of their investment guidelines if that ever changes. The only thing preventing both of these companies from being instantly downgraded to grade C junk is the tremendous economic dislocation that will result. The power players are leaning hard on the rating agencies to shut their mouths about the true condition of these firms. Don't think the free market is operating here, if it had been, MBIA and Ambac would be bankrupt already.
The concept of "talking things down" doesn't apply in a free economy. The more information that's out there, the better. If people knew the real condition of these companies, the market would have taken care of them long ago.
Also, not all "talking down" merits description as information. If I short a company, make anonymous posts on an internet board claiming some bad news is forthcoming, move the stock, and make money, what "information" has been involved? I'm not saying that's what Ackman did but you speak as if all forms of "information" are created equal.
I never said the free market is operating here nor am I criticizing Ackman's behavior on the basis of comparing it to a supposedly free market alternative. (Frankly, sometimes the world of bonds/bond derivatives/structured product seems like "free market" to me only in the sense that a pyramid scheme is "free market" ;-) My only original point was amazement that Ackman was given such a megaphone to talk down companies in whose failure he had a huge economic interest.
They can’t afford to downgrade the bond insurers. The house of cards would take another hit. They will keep them rated at AAA until their losses make it apparent even to Joe6Pack. They will keep up the Charade as long as they can. This after the ratings agencies both simultaneously formally announced they “accidentally” made math errors rating MBS. It is a Ponzi scheme. As long as everybody agrees to look the other way, they all will.
True, but a whole lot of big players have the same megaphone to talk up companies in whose short-term stock gains they have a huge economic interest. And comparing the media power of those players to the power of the dissenters is like comparing the MSM to Free Republic. ;)
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