UPDATE 2-RESEARCH ALERT-BofA, Citigroup cut Ambac, MBIA

venerdì 18 gennaio 2008 17:35

(Adds details, Citigroup's comments, share movement, background)

By Nivedita Gupta

BANGALORE Jan 18 (Reuters) - Two brokerages downgraded hard-hit bond insurers Ambac Financial ABK.N and MBIA Inc (MBI.N: Quotazione), with Banc of America Securities saying the companies are better off not raising capital amidst the continuing turmoil in financial markets.

After news of the downgrade, Ambac said on Friday it does not plan to boost capital levels -- as previously planned -- by issuing equity, in a move that may result in its top debt ratings getting cut, sending shares up as much as 15 percent.

BofA analyst Tamara Kravec cut the financial guarantors sector to "neutral" from "overweight" and downgraded Ambac and MBIA to "neutral" from "buy."

Citigroup analyst Heather Hunt cut Ambac and MBIA to "hold" from "buy," saying it was difficult to maintain her top rating amid worsening credit market conditions, despite extraordinarily low valuations. "Valuations suggest financial distress but financials do not," she said.

On Wednesday, Ambac said it cut its dividend and planned to raise $1 billion of new capital after estimating a huge write-down for the fourth quarter that would erase nearly two-thirds of the company's net worth.

Earlier in January, rival MBIA slashed its dividend by 62 percent and said it would sell $1 billion of debt to preserve capital and the "triple-A" ratings it needs to operate normally in a mortgage market under siege.

BofA's Kravec believes a "triple-A" rating is worthless in the current environment and that capital raising to preserve the rating is extremely dilutive.   Continua...