By Lavonne Kuykendall, Dow Jones Newswires
January 29, 2008
The anxiety over the fate of bond insurers who overloaded their businesses with subprime-backed securities has gotten a little out of hand, bond insurer Assured Guaranty Corp. (AGO) President and Chief Executive Dominic Frederico said Tuesday.
"This is a crisis of confidence, but at the end of the day I see no one not getting paid," said Frederico at the Citigroup Financial Services conference, which was Web cast. He said some estimates of the size of the problem were overblown. "I saw one estimate that the cost to recapitalize the industry would be $200 billion. That is not even close," he said. "The number is manageable."
Frederico said that he was "besieged daily" with calls from capital providers who want to get "into this space," he said. "If we are getting these calls so is everybody else."
As evidence of new capital coming into his business, on Monday, hedge fund SAC Capital Advisors reported a 8.9% passive stake in Assured Guaranty. Passive stakes are for investors who don't seek to change or influence a company's operations.
Frederico spoke of the problems faced by some of Assured Guaranty's competitors who find their crucial triple-A credit rating under threat as they face rising losses on their subprime mortgage investments.
Among the various proposals to bail out the industry are talks being brokered by insurance regulators in New York and Wisconsin who are proposing a bank-led bailout that will make $15 billion in capital available to the two largest bond insurers, MBIA Corp. (MBI) and Ambac Financial Group (ABK).
Frederico refused to handicap the odds of that New York/Wisconsin plan coming to pass, but he said he had "high confidence" that a solution of some type would be reached, and he said he sees the largest companies surviving. "You will see some unique solutions being provided."
Assured Guaranty has gotten involved in providing some capital to its competitors by reinsuring a portion of rival Ambac Financial's portfolio. Frederico suggested the company was interested in doing other deals that might provide capital to a rival and help strengthen the industry as a whole.
Frederico also said that despite widespread reports that governmental bond issuers have shied away from insuring their bonds as the troubled bond insurance industry has seen five of seven triple-A rated insurers either lose their rating or undergo review, Assured Guaranty is seeing strong interest.
Any hesitancy in obtaining bond insurance or wraps on municipal bonds is primarily directed to the weaker bond insurers.
He said that as of Friday, Assured Guaranty had nearly a 16% market share of U.S. public finance, an increase from previous quarters, and that pricing and terms are improved over past months.
"The pipeline is very good," said Bob Mills, the company's chief financial officer, during the conference.
Berkshire Hathaway's (BRKA BRKB) entry into the industry with its own startup municipal bond insurers did not trouble him.
"There are challenges. You need a strong infrastructure, with multiple disciplines," he said. "I don't see them with that infrastructure." He said it will take time for Berkshire Hathaway to develop expertise in the industry.
Although Assured Guaranty has seen its share price decline over the last several months, and is down 9.2% so far this year, there have been signs of increased investor confidence in the sector recently.
Shares of Assured Guaranty recently rose 7% to $24.05.
Source: CNN
Bond Insurer AGO: Industry Bailout Cost Overstated
