MBIA Inc. and Ambac Financial Group Inc., the two largest bond insurers, fell in New York Stock Exchange trading Friday after Warren Buffett said he plans to start a rival company to guarantee municipal debt.
MBIA, of Armonk, N.Y., fell as much as 10% and Ambac dropped 7.8% in early trading. Mr. Buffett, the chairman of Berkshire Hathaway Inc., told The Wall Street Journal his bond insurer would open for business Dec. 28 in New York State. David Neustadt, a spokesman for the New York State Insurance Department, said Berkshire will receive a license by Dec. 31.
Mr. Buffett, who said in October that he was looking for investments to absorb $45 billion of cash, is challenging the bond insurers as they struggle to retain the AAA credit ratings that allow them to guarantee $1.2 trillion of municipal bonds. The ratings of MBIA, Ambac, and other monolines are under scrutiny amid concern they do not have enough capital relative to the debt they insure.
"The monolines are hurting, so now is a good time for Buffett to be getting into the market," said Matthew Maxwell, a credit analyst in London for Calyon, the investment banking unit of Credit Agricole SA. "Investors might feel more comfortable investing in bonds insured by Buffett than those backed by an insurer with the legacy of the credit crisis hanging over them."
Mr. Buffett, 77, told the Journal that Berkshire Hathaway Assurance Corp. will also seek permission to operate in California, Puerto Rico, Texas, Illinois, and Florida.
New York State Insurance Department Superintendent Eric Dinallo said the agency expedited Berkshire's license request, which was handled in one month compared to the more typical three-to-nine months.
"Having new entrants in the market to provide municipalities with options to enhance the credit of new bonds or to potentially provide enhanced credit for outstanding downgraded bonds is a very positive development," Mr. Dinallo said in a statement.
Berkshire spokeswoman Jackie Wilson and Mr. Buffett's assistant Debbie Bosanek did not immediately return calls seeking comment. Calls to Liz James, a spokeswoman for MBIA, and Peter Poillon, a spokesman for Ambac, also were not returned.
