Will the Govt. start wrapping muni bonds via providing TARP to MBIA?
I am beginning to think that the Govt. is going to provide TARP funds to MBIA's new muni division to open-up the access to capital for New York and California. Having a Govt. backed wrap on munis is going to blow away competitors, as it opens-up access to needed capital for public entities.
Let's face it, the Govt can do a lot with very little money in this regard. I don't see this being a good thing for competitors. How do you compete with a Govt wrap?
Tell me this ain't going to happen....tell me it isn't so!
Seem it s best to go with best in breed not handicapped. MBIA needs more capital to come up to AGO's level and then they need more if they want to write much of this business. Further they have to rebuild their franchise reputation.
I understand the potential for this thought but personally this is not a concern.
AGO is Bermuda based, right? Would the U.S. Government support a Bermuda-based insurer? I think the current Administration is clearly on record as wanting to close loopholes that have motivated a lot of off-shoring of financial firms, so I doubt they would want to help one of them.
Not bashing ... I own the FSE notes and hope AGO does well, but I think there is more likelihood that MBIA gets helped.
Additionally, look at how instrumental the Governor of NY and Dinallio (Insur. Commissioner) have been in propping-up MBIA's split. They are positioning MBIA to be an enabler to their access to cheaper capital.
Changing gears, look at the MBIA stockholder. Their position is very grim. They don't have a product to offer customers due to their credit rating. Getting diluted by Govt TARP is not a great deal for the current MBIA stockholder, but it does give them some hope. At least the Govt will allow MBIA to offer customers a great product. This may be the only way MBIA can survive.
As for the State Of NY, they will use MBIA as the mechanism to give them access to cheap capital. Then, in all fairness, the access to capital will not be limited to just NY. They will be running wrap deals across the nation.
Any company like AGO/FSA who is funded by private capital doesn't have a chance. Who wants to invest in a wrap product that faces competition by the Federal Govt? Pffft...game over for all the private investors of the monolines. They all are forced to become another Freddie/Fannie/AIG. Last I looked the common shares of Freddie/Fannie/AIG did not look too good. Monolines could be heaped on the stack of non-profits as we approach becoming more Socialized.
Public entities currently don't have access to cheap capital due to the stale credit markets and the lack of investors.
The Govt. will not support the strong, TARP funds will go into the weaker companies (like MBIA and Ambac like Citigroup and BOA) where the U.S. Treasury and Congress can exert greater influence over which public entities gets the unique Govt. wrap. Ten billion dollars would go a long way toward wrapping bond issues for troubled public entities who don't currently have access to cheap capital in the current market.
I think this would cut the margins (profitability) of firms like AGO/FSA who seek to wrap the less risky bond issues. Let's face it, a Govt backed wrap will sell easier than a private company wrap. I am not sure that AGO/FSA could complete.
If AGO/FSA go for TARP, they will have to conform to the "rules" the Govt places on those funds. Then you are looking at a Govt investor who's returns are senior to stockholders. It is not a pretty picture for the current holders of AGO common.
Anyway, this could be one of the things that is pressuring the stock's price....just the uncertainity of it all.