"Recapitalization" is a vague word. It is being used to describe another alternative to putting Bond Insurance at risk. It apparently involves providing downgraded Bond Insurance Companies with unspecified amounts of money in exchange for unspecified conditions which may include separating Muncipal Bond Insurance operations from their "riskier activities". At least according to this Reuters Report Published in the New York Times Online, Friday, February 15, 2008.
Officials for two of the downgraded Bond Insurance Companies, MBIA and Ambac, are again quoted in the press as defending the financial vigor of their companies and at least MBIA attacking its critics in the face of downsized credit ratings.
The Bond Insurance Companies that have achieved downsized credit ratings -- in some cases, from the best or AAA to shall we say very low, or junk status -- received their involuntarily downsized credit ratings after they retreated from their area of core competency. What these Companies did, and did very well for many years, was issue Bond Insurance Policies for Municipal Bonds. They retreated from that sound and safe business, wandering into the land of subprime securitization, i.e., the land where the fast buck seemed to dwell but unfortunately the land of the now-worthless collateral such as collateralized debt obligations or CDOs. These events have been the subject of press reports and of many posts here.
Millions for Defense, Not One Darn Penny For Good Results
(Because The Results Are Not Good, You Know).
Speaking of Ambac, it is also reported that Ambac paid a reward of $800,000.00 to its departing chief risk officer -- after Ambac's assumption of CDO and other subprime risk collapsed its credit rating and threatens its core business of Insuring Municipal Bonds. This risk exposure caused what is reported to be the first losses in the history of the Company in Ambac's last two reported Quarters, which are the last two Quarters of FY 2007. For that outcome, Ambac's chief risk officer -- who just reportedly resigned for some unreported reason -- not only was paid an $800,000.00 cash bonus, but he also received a reported $425,000.00 in restricted stock plus options to buy further shares at a good price. See "Ambac's Chief Risk Officer Leaves" p. C6, col. 3 (Reuters Report Published in the New York Times Nat'l Ed., Thursday, Feb. 14, 2008).
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