Monolines: The End of the World as We Know It
NEW YORK (TheStreet) -- Foreclosures, regulation and the issues surrounding mortgage securitization placed doubts in the minds of many regarding the future of monoline insurers.
But events over the past month -- including a major bankruptcy -- has cemented a dark future for the financial guaranty business in the minds of many industry professionals.
"I don't think there is any future for any of the bond insurers," says Edward Grebeck, CEO of Tempus Advisors in a video interview with TheStreet.
Grebeck argues that a major revenue stream for the monolines, in the form of backing local government-backed debt, has been all but cut off. "No one is going to wrap [municipal bonds]. Basically, the investment market has gotten used to the idea of unwrapped municipal bonds."Ambac (ABK)'s bankruptcy filing has left only two players -- MBIA (MBI) and Assured Guaranty (AGO) -- in the municipal bond business. Only Assured Guaranty writing new business, and it recently received a downgrade by Standard & Poor's from a AAA to AA+ based on the uncertainty surrounding the industry. Without AAA ratings, it's harder for these companies to sell new coverage. Grebeck argues that financial guarantors have historically underpriced the risk on the bonds they are wrapping. The insurance operations of Ambac and MBIA, in particular, were placed in run-off after losses on subprime mortgages and home-equity loans. Morningstar Analyst Jim Ryan does not project as dire consequences for the monoline industry. "I do believe there is a need for some bond insurance, mainly limited to muni bonds," Ryan told TheStreet. Ryan argues that Assured Guaranty's business model will pave the future for the municipal bond business. Ryan says Assured Guaranty's business is strong, adding the firm underwrote 10 percent of all municipal bonds, issued 24 percent of the A-rated bonds and wrapped 14 mini bonds over $1 billion in the third quarter. Ryan argues that that while the industry will be much smaller, but is still needed.
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