« Hidden Loans in the insurance Industry |
Main
| It's Crystal Clear . . .STEER CLEAR! »
October 20, 2005
AMBAC: Katrina loss reserves: "All ... er Nuthin?"
SUMMARY:
AMBAC announced a $92 million (before tax) provision on Katrina-related financial guarantees. In other ways, the earnings conference call was uneventful. Is $92 million too little--or too much?!? More importantly--how does management propose to regain its 15+% ROE, that for so long, led the financial guaranty industry? Is it looking at new credit-related businesses--or just hoping that spreads and competition will, somehow, sort themselves out. We watch and wait!
AMBAC (symbol: ABK), announced 3Q2005 earnings results yesterday (10/19/05), which included hurricane Katrina-related loss provisions ($92 million, before tax, $62 million after-tax) related to "public finance" guarantees on some $1.1 billion debt principal amount in the Gulf Coast area. I wish they disclosed more about how they came up with $92 million. Are these solely muni credits? Or do they include other tax-backed, quasi-muni, obligations? How many years debt service do they expect to pay on defaulted bonds, and what about potential recovery efforts? And specifically, tell us about specific provisions by obligors. They were a bit cagey about this during the call. Anyway, you can listen to the recording of the analysts' call.
Aside from this, the 3Q call was uneventful. Revenue pressures continue. New competitors, alternative "financial guaranty" products (e.g. senior-subordinated structures) and narrow credit spreads that persist in virtually all credit markets--all challenge the 15+% ROE the company has until recently been generating for investors. However, anyone who follows the industry knows this.
But what about the adequacy of that $92 million on $1.1 billion notional principal amount??? On one hand, you could say that ABK, known for its relative "transparency", is conservatively provisioning its Katrina exposure.
"Everyone" knows--and the rating agencies support the view, through allocating next-to-zero capital charges to "municipal" debt--that munis don't default, they just restructure. So, "$92 million is conser... ", you get the picture.
Alternatively, ABK could, also conservatively, argue: "we might have to pay some debt service on bonds of a few hard-pressed localities--BUT we will recover in full. Munis HAVE to make us whole--or they will look bad in the capital markets and be precluded from future borrowings, which they can't... etc., etc. Therefore--we're NOT booking ANY Katrina provision".
Yet another alternative--if you don't buy the "munis can't default, so I can't lose" argument, you could say that the entire principal amount -- $1.1 Billion -- is at risk! This is because "contagion" spreads quickly in the financial markets. Borrowers ape behavior of similar borrowers who have "gotten away with it", especially government borrowers.
Recall that a few months ago, Argentina simultaneously "cleared its name" and reneged on $ Billions owed private investors. WSJ: Bondholders await Argentine Payment. Now, you read that in Africa, Zimbabwe says it may have to nationalize investments to compensate for the economic losses of its own making... and then there's Venezuela: WSJ: Chavez Says Venezuela to Cancel All Existing Mining Concessions.
Once you go the route of questioning rating agency muni capital charges and therefore financial guarantor muni exposure, why stop at Katrina exposure? Why stop at AMBAC? Yes, it is scary--I mean, at least half the financial guarantors' $ Trillion+ guaranty portfolios are muni risk.
This wouldn't be the first time rating agency models have not performed as advertised. Remember Asia and emerging markets (1997), Russia (1998), Enron (2001), CDOs (2002... going forward)???
One thing missing from Ambac's 3Q earnings call: Disappointing that Ambac did not address efforts as regards new businesses to generate "15+% ROE" for shareholders. Yes, credit spreads are narrow. But what else is management doing?
The point here is that ABK's $92 million Katrina provision is neither "too little" nor "conservative". It just "is". And for now, it provides a good opportunity to legitimately stockpile earnings reserves, should competitive revenue pressures continue and "15+% ROE" be a thing of the past.
Posted by ed.grebeck at October 20, 2005 12:57 PM
Posted by: MAsijuon at May 2, 2008 10:04 PM
Posted by: LygiUuon at May 3, 2008 04:22 AM
allstate auto insurance company
allstate auto insurance company
Posted by: FimUeggg at July 4, 2008 08:33 AM
pennsylvania automobile insurance commission
pennsylvania automobile insurance commission
Posted by: LyCjOggg at July 4, 2008 10:53 PM
workmens auto insurance company
workmens auto insurance company
Posted by: DAsiqggg at July 5, 2008 03:31 PM
accident auto claim insurance
accident auto claim insurance
Posted by: LUgiyggg at July 6, 2008 04:23 AM
accident auto claim insurance
accident auto claim insurance
Posted by: LUgiyggg at July 6, 2008 04:23 AM
comprehensive auto insurance definition
comprehensive auto insurance definition
Posted by: XyTeiggg at July 6, 2008 04:23 PM
accident auto claim injury insurance personal
accident auto claim injury insurance personal
Posted by: PeKqiggg at July 7, 2008 03:05 AM
accident auto claim injury insurance personal
accident auto claim injury insurance personal
Posted by: PeKqiggg at July 7, 2008 03:05 AM
sgrey5vh 5fghh
sgrey5vh 5fghh
Posted by: RqCyjggg at July 7, 2008 11:45 PM
kiuybg vfreds
kiuybg vfreds
Posted by: RyDUiggg at July 10, 2008 04:50 PM
ikzswq875 vfred
ikzswq875 vfred
Posted by: HqpAeggg at July 11, 2008 02:23 AM
yhgfre xzaqpmjg
yhgfre xzaqpmjg
Posted by: Visyjggg at July 11, 2008 12:50 PM
test9-7-8-13900
test9-7-8-13900
Posted by: TAzjqggg at July 12, 2008 12:22 AM
Seap debt counseling buy tramadol online
Seap debt counseling buy tramadol online
Posted by: NezOiggg at July 12, 2008 11:26 AM
Seap debt counseling buy tramadol online
Seap debt counseling buy tramadol online
Posted by: NezOiggg at July 12, 2008 11:26 AM
test9-7-8-13900
test9-7-8-13900
Posted by: KypiOggg at July 13, 2008 12:15 AM
zanaflex headaches pregnancy
zanaflex headaches pregnancy
Posted by: XjTeqggg at July 16, 2008 02:11 PM
zanaflex headaches pregnancy
zanaflex headaches pregnancy
Posted by: XjTeqggg at July 16, 2008 02:12 PM
1car1.com car england hire rental scotland uk van wales
1car1.com car england hire rental scotland uk van wales
Posted by: XAbOUggg at July 17, 2008 02:13 PM
1car1.com car england hire rental scotland uk van wales
1car1.com car england hire rental scotland uk van wales
Posted by: XAbOUggg at July 17, 2008 02:13 PM
2 car menorca rental week
2 car menorca rental week
Posted by: SAhUeggg at July 18, 2008 01:33 AM
1 car rental showsearchbar
1 car rental showsearchbar
Posted by: XeTOAggg at July 18, 2008 12:14 PM
1 car menorca rental week
1 car menorca rental week
Posted by: WqziOggg at July 19, 2008 10:56 AM
1 car menorca rental week
1 car menorca rental week
Posted by: WqziOggg at July 19, 2008 10:56 AM
1car1.com car england hire rental scotland uk van wales
1car1.com car england hire rental scotland uk van wales
Posted by: GeTAiggg at July 19, 2008 10:41 PM
2b diflucan prescribing professional
2b diflucan prescribing professional
Posted by: TipqUggg at July 20, 2008 09:41 AM
50 benefit carpenter insurance local
50 benefit carpenter insurance local
Posted by: XeCjqggg at July 20, 2008 07:45 PM
26r 421 auto fcid fcp insurance internal nav r
26r 421 auto fcid fcp insurance internal nav r
Posted by: LjxOyggg at July 21, 2008 06:35 AM
26r 421 auto fcid fcp insurance internal nav r
26r 421 auto fcid fcp insurance internal nav r
Posted by: LjxOyggg at July 21, 2008 06:36 AM
neurontin gabapentin side effects
neurontin gabapentin side effects
Posted by: Bypjeggg at July 23, 2008 10:53 PM
neurontin gabapentin side effects
neurontin gabapentin side effects
Posted by: Bypjeggg at July 23, 2008 10:54 PM
imitrex klor con 10 actos zestril doxycycline clarinex
imitrex klor con 10 actos zestril doxycycline clarinex
Posted by: RAleUggg at August 6, 2008 12:24 AM
acid reflux disease prevacid heartburn symptoms doctor talk
acid reflux disease prevacid heartburn symptoms doctor talk
Posted by: TAXUyggg at August 6, 2008 10:09 AM
nursing care plans for clients taking cardizem
nursing care plans for clients taking cardizem
Posted by: PqryUggg at August 6, 2008 07:48 PM
5mg amlodipine besylate norvasc order
5mg amlodipine besylate norvasc order
Posted by: Hyxqjggg at August 7, 2008 05:28 AM
obsessive compulsive disorder and risperdal
obsessive compulsive disorder and risperdal
Posted by: Lyzejggg at August 7, 2008 03:20 PM
imitrex and rebound headaches
imitrex and rebound headaches
Posted by: XixAyggg at August 8, 2008 12:44 AM
imitrex and rebound headaches
imitrex and rebound headaches
Posted by: XixAyggg at August 8, 2008 12:45 AM
imitrex and rebound headaches
imitrex and rebound headaches
Posted by: XixAyggg at August 8, 2008 12:46 AM
5mg amlodipine besylate norvasc order
5mg amlodipine besylate norvasc order
Posted by: XjhiAggg at August 8, 2008 09:30 AM
acute myocardial infarction verapamil nitro
acute myocardial infarction verapamil nitro
Posted by: CeTiAggg at August 8, 2008 05:15 PM
Professionally C2000 free lg ringtone, danny ferrington guitar
Professionally C2000 free lg ringtone, danny ferrington guitar
Posted by: HiKUAggg at August 18, 2008 11:45 PM
Professionally C2000 free lg ringtone, danny ferrington guitar
Professionally C2000 free lg ringtone, danny ferrington guitar
Posted by: HiKUAggg at August 18, 2008 11:46 PM
Professionally C2000 free lg ringtone, danny ferrington guitar
Professionally C2000 free lg ringtone, danny ferrington guitar
Posted by: SyXjqggg at August 19, 2008 06:05 AM
All-Round Soccer am showboat ringtone, download ringtones and wallpapers
All-Round Soccer am showboat ringtone, download ringtones and wallpapers
Posted by: Nylqjggg at August 19, 2008 01:53 PM
All-Round Soccer am showboat ringtone, download ringtones and wallpapers
All-Round Soccer am showboat ringtone, download ringtones and wallpapers
Posted by: Nylqjggg at August 19, 2008 01:54 PM
All-Round Soccer am showboat ringtone, download ringtones and wallpapers
All-Round Soccer am showboat ringtone, download ringtones and wallpapers
Posted by: WApyjggg at August 19, 2008 10:19 PM
All-Round Soccer am showboat ringtone, download ringtones and wallpapers
All-Round Soccer am showboat ringtone, download ringtones and wallpapers
Posted by: WApyjggg at August 19, 2008 10:20 PM
Advance Kottonmouth kings ringtones, final fantasy 7 ringtone
Advance Kottonmouth kings ringtones, final fantasy 7 ringtone
Posted by: KUvjOggg at August 20, 2008 05:49 AM
Post a comment
