NEW YORK -- Bond insurer MBIA is at greater risk of a capital shortfall than previously communicated, and a shortfall is now considered somewhat likely, Moody's Investors Service said on Wednesday.
The conclusion was based on an analysis of MBIA's residential mortgage-backed portfolio, Moody's said in a statement.
Shares of MBIA and Ambac Financial Group tumbled abruptly after the Moody's statement.
MBIA's shares were down nearly 15 percent, or $4.79, at $27.84. Shares of rival bond insurer Ambac slid about 7 percent, or $1.86, to $23.96.
A spokesman for MBIA could not immediately be reached for comment.
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"There's a lot of uncertainty around MBIA, and the market doesn't like uncertainty," said Mark Lane, stock analyst covering MBIA at William Blair & Co. in Chicago, who does not own its shares. "It's easy to come up with big, scary numbers and make draconian assumptions, but it's very difficult to estimate what MBIA's ultimate losses will be."
Of five large bond insurers being reviewed by Moody's, CIFG, owned by French bank Natixis, is most likely to fall below the capital benchmarks for a "triple-A" rating, Moody's said. However, CIFG has announced a plan to enhance its capital that would significantly reduce risks, Moody's said.
Moody's has been reviewing bond insurers to determine the impact of the subprime mortgage crisis and the insurers' exposure to structured securities containing the risky mortgages. The review is expected to be completed within two weeks, Moody's said.
Financial Guaranty Insurance Co., Security Capital Assurance and Ambac Financial Group are "somewhat likely" to have a capital shortfall, Moody's said.
On Nov. 8, Moody's had said that its initial analysis showed MBIA was unlikely to face capital shortfalls.
Insurers could lose their key "triple-A" ratings if capital falls below Moody's benchmarks and the companies' plans to remedy shortfalls are considered "unreliable," Moody's said.
The cost of protecting MBIA's debt against default rose 80 basis points after the Moody's statement to 480 basis points, or $480,000 a year for five years to insure $10 million in debt, according to broker Phoenix Partners Group.
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