Assured Guaranty (AGO) does a wonderful job replying to Moody’s (MCO) recent announcement that they are evaluating a potential downgrade of the bond insurance company. In the presentation the company makes a variety of salient points relating to the record of profitability under unprecedented market stress, to the continuing ability to write higher margin business despite the uncertainty from the ratings companies. AGO’s leverage is down and the percentage of their portfolio that is public finance has increased versus structured finance, which should result in far less volatility moving forward. These ratings agencies are an embarrassment and the further away the market can get from relying on them for guidance, the better things will be. These are companies riddled with conflicts of interest, and they have proven to be inaccurate and fickle. They are so reactionary as opposed to proactive, and credit markets are not served by companies that are completely ignorant in their credit ratings and forecasting until conditions get worse, when they proceed to throw gasoline on a wild fire. The question for AGO is whether or not shareholders would be better served with a larger share buyback and that is the issue that I think Dominic Frederico, the company’s CEO needs to address with more clarity in a public format. I think this more aggressive approach is what could really add value to shareholders, and I think that over the long run it would be beneficial to business if they reduce the reliance on the ratings agencies to shape the outcome of their business.
http://assuredguaranty.com/images/uploads/Response_to_Moodys_April_13,_2012.pdf