An earlier version of this story incorrectly stated that Assured Guaranty aimed to restart its municipal bond insurance business. Assured Guaranty has an active business insuring municipal bonds. TheStreet regrets the error.
NEW YORK (TheStreet) -- Assured Guaranty (AGO)'s largest shareholder, Wilbur Ross, called the bond insurer "probably the best risk/reward position in my entire portfolio," in a brief email exchange Friday.
Ross added that he was heartened by a U.S. District Court ruling Wednesday, in which a judge ruled Assured Guaranty can move forward with claims against UBS. Assured argues UBS made misrepresentations about the quality of loans it packaged into securities that Assured Guarantee agreed to insure. Judge Harold Baer threw out some of of the claims, however.
The "adverse ruling against UBS is another vindication for [Assured]'s assertion that a major reason for [Residential Mortgage Backed Securities] defaults was inappropriate underwriting by mortgage originators and packagers who did not live up to the reps and warranties they made to Assured," Ross wrote."UBS is pleased with the Court's ruling that Assured Guaranty lacks the contractual right to enforce loan repurchase demands, and as Assured knows, the court ruled on threshold legal issues only and its claims have yet to be tested in court," a UBS spokeswoman said in an emailed statement. "Assured is a highly sophisticated market participant who knowingly undertook insurance risks that it now seeks to transfer improperly to UBS following the collapse of the US housing market." Expounding upon his bullish thesis, Ross wrote that Assured "is the only credit enhancer to have remained profitable every quarter through the financial crises and every quarter it reduces its exposure to legacy commitments." Adding that the investment "is probably the best risk/reward position in my entire portfolio," he asked "what else with uninterrupted earnings trades at half of high quality book value and not much more than 1/4 of book value, adjusted for the present value of prepaid premiums for the enhancement of investment grade municipal bonds? It has survived the subprime crisis, the Greek default and will survive the next crises as well," he contended. Ross's investment firm WL Ross & Co., a unit of Invesco Ltd. (IVZ) owns 19.8 million shares in Assured, according to his latest 13F filing with the Securities and Exchange Commission. According to Bloomberg data, which shows only 19.4 million shares, his average cost was $18.07, compared to $14.11 in late afternoon trading Friday. Ross also sits on Assured's Board of Directors. Ross bought the majority of his shares in April 2008 for an average price of $23.47. He kept buying as the stock fell, however, never paying more than $12 per share after the initial misstep. Assured, which like other bond insurers ran into trouble when it expanded out of municipal bond insurance into insuring bonds backed by pools of mortgages underwritten during the housing boom, hopes to grow its municipal bond underwriting business. One obstacle is the threat of a downgrade Moody's Investors Service (MCO). BTIG analyst Mark Palmer argues the shares are worth "north of $16 and perhaps much higher," even if it never writes another insurance contract, however. Not all big investors are fans of insuring muni bonds. Berkshire Hathaway chairman Warren Buffett called it a "dangerous business" after he exited the sector in 2009. "I do not agree about [the] "dangerous business" [comment] This company has been profitable every quarter, all through the crisis," Ross wrote in response to Buffett's comments. Asked whether he is interested in Assured as a runoff play or as a growing muni bond insurer, Ross wrote, "either way the stock is very cheap in my opinion." -- Written by Dan Freed in New York. Follow this writer on Twitter.
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