Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Categorized | Capital Markets, Insurance

MBIA: new wrapping


Posted on March 26, 2014

Does time heal all wounds? A half-decade after MBIA and fellow bond insurers rocked the US municipal bond market after buckling under risky mortgage debt that they had also guaranteed, MBIA is poised to start insuring “munis” anew. Standard & Poor’s recently raised its rating on MBIA’s US muni insurance arm, National Public Finance Guarantee, to double A minus from single A, enabling it to charge enough in premiums to make substantial new business worthwhile. It has done a handful of new deals of late. MBIA has made big strides cleaning up its mortgage mess and split the troubled structured finance business from the healthy muni one. But will the muni market embrace insurance again?

    Pre-crisis, 50 to 60 per cent of muni bond issuance was insured – and some investors simply outsourced the credit work. Last year, the share was 3.2 per cent, according to Municipal Market Advisors. There were nine active insurers in 2007, versus just Assured Guaranty and new entry, Build America Mutual, in 2013 after most insurers collapsed.

    There are other impediments. With interest rates low, investors have valued the yield that comes with risk more than the safety of insurance. After insurers’ disastrous turn in the crisis, many investors have been less inclined to trust the insurance enough to forgo their own analysis of the issuer. For those doing that work, there is little point to buying bond insurance.

    As rates rise, the economics of bond insurance make more sense. And distressed situations such as Detroit and Puerto Rico may remind investors of the value of insurance, though they will simultaneously test the model – both MBIA and Assured have about $5bn of exposure to Puerto Rico. Bond insurance is likely to become more popular. But it is unlikely to regain the dominance it once had. That is a relic of the past.

    Email the Lex team in confidence at lex@ft.com