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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV