Wall Street bolted higher today after Standard & Poor’s affirmed its ratings for Ambac Financial Group Inc. and MBIA Inc., raising hopes that troubled bond insurers will emerge from the credit market crisis on solid footing. The Dow Jones industrials rallied nearly 190 points.
There has been speculation that Ambac might find sufficient capital early this week to hold onto the stellar “AAA” rating it needs to remain in the municipal bond business.
Rating agencies including S&P have been under pressure to downgrade the insurers after they had weakened their financial positions by insuring subprime mortgage securities that later collapsed.
The credit industry, already slammed by the summer’s mortgage crisis, could face further erosion if bond insurers were to falter, and Wall Street has fallen sharply recently on any bad news about the insurers, and Ambac in particular. Municipalities and companies used these insurers to back bonds, allowing them to get higher rating and cheaper financing.
Charlie Smith, chief investment officer at Fort Pitt Capital Group, said the pronouncement by Standard & Poor’s was easing Wall Street’s fears that the major investment banks would have to book further write-downs on their debt, having suffered billions of dollars in losses during the fourth quarter. Had bond insurers lost their highest ratings, the bonds they back would likely see their ratings lowered and forced the sale of some investments.
“This is essentially evidence that S&P has signed off any tentative deal,” said Charlie Smith, chief investment officer at Fort Pitt Capital Group.
According to preliminary calculations, the Dow rose 189.20, or 1.53%, to 12,570.22.
Broader stock indexes were higher. The Standard & Poor’s 500 index rose 18.69, or 1.38%, to 1,371.80; and the Nasdaq composite index added 24.13, or 1.05%, to 2,327.48.