Warren Buffett faced is facing criticism after Moody’s Investors Service — in which he is the largest stakeholder —told bond insurers to accept a bailout.
Warren Buffett faced criticism after Moody’s Investors Service — in which he is the largest stakeholder —told bond insurers to accept a bailout, get more cash or else face downgrades, the New York Post said.
In light of the turmoil that’s hit the bond insurance industry, Mr. Buffett has thrown a lifeline to troubled insurers MBIA Inc. of Armonk, N.Y., Ambac Financial Group Inc. and Financial Guaranty Insurance Co., both of New York.
Through new bond insurer Berkshire Hathaway Assurance Corp., the billionaire investor offered to reinsure $800 billion in muni bonds covered by the three companies, allowing them to free up capital.
He would only take prime securities, passing over the mortgage-related debts that plunged the insurers into trouble in the first place.
The premiums the insurers would have to pay in order to participate were also very high: 150% of the premium these insurers were already charging their clients, the Post said.
The offer sparked a wave of criticism from the bond insurance industry, who claimed Mr. Buffett had a conflict of interest, the Post said, citing “insurance industry sources.”
However, Mr. Buffett also owns a 19% stake in Moody’s, which has put at least four insurers on notice to either accept financial help or raise capital to keep their triple-A credit ratings.
Many of the bond insurers declined Mr. Buffett’s help, opting to split their businesses instead.
