While we did not get a list of these, the two obvious ones are MBIA inc. (NYSE: MBI) and Ambac Financial Group, Inc. (NYSE: ABK).  Presumably the third one would be FGIC, or likely it could be Security Capital Assurance Ltd. (NYSE: SCA).  Most shares are higher after Buffett came on CNBC with his plan:
SCA +9% at $2.24; MBI +3% at $14.00; ABK +4.5% at $10.96.

• We previous noted, "Would Buffett Save The Insurers?"
• Berkshire Hathaway shares are also up about 3% since we noted that "The Barron’s Sell-Off Could Be Your Gain"

Mr. Buffett did note that this was initially a $5 Billion proposition and that he would keep all earnings inside the entities for a period of 10-years.  He also noted that one rebuffed his offer and two he has not heard back from.

What is important here is that this will at least take care of the municipal bond side even if those other bond insurance operations in mortgages, CDO’s, and CLO’s were to fail.  But Buffett is drawing his line in the sand on what risks he will take and which he will not take.  These plans would not include insuring mortgages, CDO’s and CLO’s.  That is why the bond insurers are not jumping at this offer.  They’d be giving away their top operations to feed their leeches.

He even made a note about how his new municipal bond insurance unit received a 2% premium merely to reinsure a muni that had already been insured so it could maintain its triple-A rating even if the bond insurer failed.  No wonder he’s willing to step up.  If you have a few billion dollars lying around and have a solid insurance holding company operations this sounds like a layup when you consider the fact that it takes the worst scenarios to cause municipal defaults.   

Perhaps the most important issue at hand is that this will at least put a floor on the blood-letting that has been seen in the municipal bond arena.  It won’t help the mortgage and CDO insurance operations, although there is an obvious tertiary benefit in that this at least in theory saves part of those businesses.

Jon C. Ogg
February 12, 2008

MBIA is trading up roughly 12% to $17.50 and Ambac is trading up over 15% at $13.50 in pre-market trading.  We noted before how "mergers may be mandated rather than preferred" and this would fall right into that coup and conspiracy.  The counterparty risks are just too severe if one of these were to fail entirely.  Goldman Sachs recently outlined the values of potential packages.

Forming this consortium may be the banks saving their own skin rather than them just coaxing a financial opportunity.

Jon C. Ogg
February 1, 2008