The Monoline Game

Will one and a half be enough? Ambac tumbled yesterday on news that instead of an expected bank-based recapitalisation in excess of $2B, the monoline would instead do a $1B rights issue and sell $500M of hybrid securities. This is really calling S&P and Moody's bluff. If Ambac's judgment is that that they do not have the bottle to downgrade it, only a billion of new equity feels like a reraise on the river after flat calling the turn.

Ambac has also decided not to split. Presumably given Dinallo has no authority to force them to, and the legal risk of good insurer/bad insurer is great, this at least counts as rational.