Bond Insurers Ask Investment Banks to Rip Up Their Policies
Posted by Jason on 06/23 | 07:39 AM
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Bond Insurers, Ambac, FGIC and MBIA are negotiating with financial firms to more or less rip up the insurance the monolines sold to them to cover potential losses on their CDS contracts.
Standard & Poor's estimates the nominal value of the CDS and CDO contracts at $125 billion. The bond insurers want to get out from under these contractual nooses after their ratings were downgraded by S&P last week.
To make it worth their while the banks are given an upfront payment to entice them to tear up the insurance on their derivative contracts. The bond insurers are preparing for the worst and not taking any chances with where the market may be heading according to the Financial Times.
There is little certainty about whether or not these CDSs will ever have to be paid out. In theory, bond insurers could be on the hook for billions of dollars, but it is possible that if market conditions stabilise and improve, their actual pay-outs might be low.
Standard & Poor's estimates the nominal value of the CDS and CDO contracts at $125 billion. The bond insurers want to get out from under these contractual nooses after their ratings were downgraded by S&P last week.
To make it worth their while the banks are given an upfront payment to entice them to tear up the insurance on their derivative contracts. The bond insurers are preparing for the worst and not taking any chances with where the market may be heading according to the Financial Times.
There is little certainty about whether or not these CDSs will ever have to be paid out. In theory, bond insurers could be on the hook for billions of dollars, but it is possible that if market conditions stabilise and improve, their actual pay-outs might be low.
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