Buffett’s decision this week to launch his own bond insurer drove shares of MBIA down even further, as reported by the WSJ and theStreet.com on Friday.
Buffett probably had ample opportunity to step in and buy MBIA or Ambac with his $45 billion war chest (less $4.5 billion for his purchase of Marmon?), but decided rather to build versus buy.
Bill Ackman’s presentation at this year’s Value Investing Congress laid out in 145 slides the bear case for the current bond insurers and steps on how to save the industry. His response to the question “Why Would Anyone Bail Out a Holding Company” seem spot on given Buffett’s recent entry into the industry:
- Investors won’t invest in a Holding Company because it is structurally
subordinate to hundreds of billions of dollars of Insurance Subsidiary
exposure - Tens of thousands of individual credits make it practically impossible to
gain comfort regarding the magnitude of potential loss exposures - As sums required to bail out Bond Insurers reach into the billions of
dollars, new investors would be better off “greenfielding” a new Bond
Insurer (in a tax free jurisdiction) without having to assume billions of
unknown liabilities
The rest of the presentation is full of great information and is highly recommended.
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