This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Smart Money Betting on Bond Insurer Payoff: Street Whispers

NEW YORK (TheStreet) -- Bond insurers MBIA (MBI) and Assured Guaranty (AGO)have been some of the hottest investments in the financial sector over the past five days, and while most Wall Street analysts long ago dropped coverage of these companies, big name investors are increasingly betting they can continue their rebound.

In the second quarter, hedge fund Perry Capital upped its stake in MBIA and Assured Guaranty to three million shares from 30,500. Perry, a protégé of former Treasury Secretary Robert Rubin when both men were at Goldman Sachs, joins Morningstar fund manager of the decade Bruce Berkowitz in betting MBIA can hang on long enough to win a multi-billion dollar settlement from Bank of America (BAC) and get back into the municipal bond insurance business.

Investors were reassured on that count after MBIA reported second quarter earnings after the market closed Aug. 8. Since that time, shares are up 18.72% through Wednesday, when they closed at $13.41.

Assured Guaranty shares started running ahead of the company's Aug. 10 earnings report, possibly on investor optimism following MBIA's results. From the Aug. 8 close through Wednesday, Assured's shares have jumped 16.61%. Top shareholder WL Ross & Co., which bought 10.65 million Assured Guaranty shares in April 2008 at an average price of $23.47, now looks to have made the right decision as the investor steadily accumulated just under 9 million shares in the ensuing years, never paying more than $12.

While both MBIA and Assured Guarantee got way over their heads insuring mortgage backed securities in the 1990s and early 2000s, they have so far managed to remain solvent, while competitors were driven out of business. They now want to get back to their traditional role insuring municipal debt.

Some have their doubts about muni bond insurance, including Warren Buffett, who after taking a stab at the industry in 2008 concluded a year later it was a "dangerous business," because, as he wrote in his annual shareholder letter, "what mayor or city council is going to choose pain to local citizens in the form of major tax increases over pain to a far away bond insurer?"

Stock quotes in this article: MBI, AGO 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs