reply birdbear, ""stock buyback can improve ABK's rating"

Birdbear thinks it is laughable that I said "stock buyback can improve ABK's rating". I am not sure if I said that, but that statement does have some logice in the special case of ABK.

When Moody's downgraded ABK's credit rating, here is what it had to say:

Moody's said, "Today's rating action concludes a review for possible downgrade that was initiated on June 4, 2008, and reflects Moody's views on Ambac's overall credit profile in the current environment, including the company's significantly constrained new business prospects, its impaired financial flexibility and increased expected and stress loss projections among its mortgage-related risk exposures relative to previous estimates. The outlook for the ratings is negative, reflecting uncertainties regarding the company's strategic plans going forward, as well as the possibility of further adverse developments in its insured portfolio. Moody's noted, however, that these risks are mitigated somewhat by the company's substantive capital cushion at the current rating level and that this was an important consideration in arriving at the Aa3 insurance financial strength rating."

If u followed ABK, MBI's story closely, u will know that no one doubts about ABK and MBI's ability to pay claims, meaning everybody believes that they have sufficient money. This is very strange. In my understanding, credit rating is about financial strength, not about business prospects, financial strength can be quantified which makes it ratable, business prospects is just a guess, no one knows the future. Anyway, Moody should know much more about insurance than me, that is for sure.

So, from Moody's own words, it is concerning about ABK's financial flexibility, to translate it, it means ABK's share price is too low, if ABK wants to raise more capital if sth bad happens, it can't raise much because of low share price, meaning capital market has lost confidence on ABK completely. we all know that ABK has sufficient fund, which is really a disconnect between reality and market perception, so what will u do to bring ABK out of danger if u are the CEO of ABK? ...... Buying back shares! shows the world u do have money, damn it! a lot of them. It also does a service to current shareholder when u buy back severely undervalued stocks. It also deters short sellers, when ABK announces its $50 million share buyback plan, its share price is under $2 IIRC, ABK has around 300 million shares outstanding, so $50 million can buyback around 30 million shares, about 10%, very significant. I am sure if it is put into practice, ABK's share price will go up, its financial flexibility will increase, hence its rating may improve eventually, maybe still a stretch, :) but that is how the logic goes.

Thanks for reading! different views welcome!!!

所有跟帖： 

• today ABK closed at 5.68, up more than 500% in less -longtermInvestor- ♂ (399 bytes) () 08/16/2008 postreply 06:14:09

• Moody gave those mortgage bonds AAA rating before -horse625- ♂ (0 bytes) () 08/16/2008 postreply 09:36:55

• Watch abk since you mentioned in DQ, -有所图- ♀ (105 bytes) () 08/16/2008 postreply 08:57:18

• I sold abk bought with margin, still have the rest. -longtermInvestor- ♂ (1151 bytes) () 08/16/2008 postreply 12:33:30