MBIA, Ambac grapple with subprime fallout

MBIA Inc. anticipates more write-downs, which will corrode first-quarter earnings, according to a filing with the Securities and Exchange Commission. In the first two months of the year, the Armonk, N.Y.-based bond insurer observed widening market spreads, as well as credit downgrades of tranches in its insured collateralized debt obligations. Increased deterioration of the assets’ credit ratings could cause mark-to-market losses in the first quarter of 2008 and subsequent quarters, the bond insurer said in its SEC filing. The depth of that loss would depend on market developments. New business for MBIA is also drying up, thanks to market volatility and the deteriorating subprime-mortgage market: “The demand for our product is the lowest it has been,” the insurer said in its filing. “We are writing very little new business.” However, there is also a silver lining: The company is decreasing its exposure to bad credits in its insured portfolio as these debt obligations mature which will, in turn, free available capital, the filing said. In other bond insurer news, Moody's Investors Service announced today that it has concluded its analysis of the residential mortgage and mortgage-related CDO exposures of Ambac Assurance Corporation, and is continuing a review for possible downgrade that was initiated on Jan. 16. The New York-based insurer is talking with banks and private-equity firms to shore up at least $3 billion and could meet Moody’s capital target if it gets the cash together, according to The Wall Street Journal. In the meantime, the ratings agency is continuing its six-week review of Ambac, Bloomberg said. Earlier this week, Moody’s affirmed MBIA’s triple-A rating, after the company raised $3 billion in capital. The company also agreed to separate its municipal and asset-backed businesses in the next five years, and to stop granting coverage to asset-backed debt for at least six months.