Late last year, Dinallo encouraged Berkshire Hathaway, the company controlled by Warren E. Buffett, to enter the bond insurance business. At the time, Buffett said he did not want to invest in existing guarantors because of their financial problems, and he started his own firm instead.
Since then, the troubles have worsened. Last week, Fitch Ratings downgraded Ambac’s credit ratings to double-A, from triple-A. MBIA still has a triple-A rating from the three agencies; the others are Standard & Poor’s and Moody’s Investors Service.
While $15 billion might seem like a large amount of money for banks to commit to bond guarantors at a time when many investors have lost faith in them, Haines said it would be smaller than the billions the banks might have to write down if the companies lost their top ratings or incurred major losses.
“It’s a calculated kind of risk,” he said.
A spokesman for Ambac did not return calls seeking comment. A spokeswoman for MBIA declined to comment.
Analysts say it is unclear how much money would be needed to capitalize the companies adequately. The ratings agencies have changed their requirements several times already as they update their assumptions of defaults and losses on mortgage securities.
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