Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (95800)	11/28/2007 5:44:57 PM
From: Sr K	Read Replies (3) \| Respond to of 306849

now additional use of reinsurance is an "increase[d] capital" bloomberg.com Ackman said he personally stands to gain about $500 million if MBIA's holding company failed and that amount would be donated to charity. The fund itself stands to make ``multiple billions of dollars' if the holding companies of MBIA and Ambac were to fail, he said. - MBIA, Ambac Bear Ackman to Donate Profit to Charity (Update5) By Christine Richard Nov. 28 (Bloomberg) -- William Ackman, whose hedge fund has short positions on bond insurers, said he will make ``hundreds of millions of dollars' on his bets and plans to donate the proceeds to charity. Ackman, president of Pershing Square Capital Management, told the Value Investing Congress in New York that MBIA Inc. and Ambac Financial Group Inc., the holding companies of the two largest bond insurers, may fail, yielding him a windfall profit that will be donated to the Pershing Square Foundation. Ackman said the insurance subsidiaries could be saved if they were taken over by regulators. ``We're short the holding companies because we think they'll run out of cash and go bankrupt,' Ackman, who first criticized MBIA in a 2002 report, said in an interview. ``What I said at the time to regulators and anyone who would listen is that this is a problem now, but it's going to be a bigger problem later.' Pershing Square has $6 billion of assets under management. Bond insurer shares plunged this year on concerns that tumbling credit-ratings of subprime mortgage assets may force companies such as MBIA and Ambac, the two largest, to take larger writedowns. Moody's Investors Service, Fitch Ratings and Standard & Poor's are reviewing the companies' capital to determine whether they deserve to keep their AAA ratings. A spokesman for MBIA, Jeff Lloyd, didn't have an immediate comment, and Ambac spokesman Peter Poillon didn't respond to a voicemail message. Donated to Charity Ackman said he personally stands to gain about $500 million if MBIA's holding company failed and that amount would be donated to charity. The fund itself stands to make ``multiple billions of dollars' if the holding companies of MBIA and Ambac were to fail, he said. ``The hedge fund business is profitable. I've made more than I need,' Ackman said. ``I also think it's the right thing to do.' In 2002, Ackman issued a report questioning the AAA credit rating assigned to MBIA's insurance company. In a short sale, investors borrow securities and agree to sell them at a later date, profiting from any drop in the stock. MBIA, based in Armonk, New York, was down 58 percent this year before today. The stock rose 3 cents to $30.49 at 3:38 p.m. in New York Stock Exchange composite trading. Ambac, down 76 percent this year, rose 60 cents to $22.39. `Pad the Bonus' Ackman said the bond insurers have expanded beyond their traditional business of insuring municipal bonds into riskier guarantees for which there is little default history. Among such transactions are guarantees bond insurers wrote on collateralized debt obligations held by investment banks, Ackman said. These deals allowed the banks to avoid mark-to- market losses on the securities and to book profits on the holdings as soon as they put in place the guarantee contracts with the bond insurer. ``On Wall Street this is known as the 'Pad the Bonus trade,'' Ackman said. ``Everyone wins. Bond insurers take a profit and banks take a profit.' Such transactions, which resulted in fees for insurers and immediate profits for banks, have made it difficult to know the total amount of CDOs held by banks. ``The biggest problem with the market right now is that people don't know where the risk is,' said Ackman in a speech to the conference. The bond insurers have booked mark-to-market losses on these contracts that are `arbitrary' and understate ``reality,' Ackman said. 'Not Compensated' Ackman said MBIA and Ambac could take losses of $5 billion to $6 billion on CDOs and on securities backed by home equity lines of credit and commercial mortgages. Companies such as MBIA and Ambac aren't getting compensated for the risk they take on and their business models don't ``make sense,' he said. Ackman told investors at a charity event in May that the insurance subsidiaries of MBIA and Ambac would be overwhelmed by their guarantees on CDOs backed by subprime mortgages. The companies have maintained that while they may need to bolster capital to support their AAA credit ratings, they won't pay material claims on CDOs. Among the options bond insurers are considering to increase capital are additional use of reinsurance, a slow down in new business and the sale of debt or equity. The Pershing Square Foundation, created last year, has $20 million, Ackman said in an interview. It has a broad charitable approach and so far has invested in educational programs targeting inner-city high school students to help them with college entrance exams. To contact the reporter on this story: Christine Richard in New York at crichard5@bloomberg.net Last Updated: November 28, 2007 15:59 EST