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Wilbur Ross: Buffett Offer No Help For Bond Insurers

Last Update: 2/13/2008 8:34:16 AM

NEW YORK (Dow Jones)–Wilbur Ross, the fund manager eyeing possible investments
in struggling U.S. bond insurers, said Wednesday on CNBC that Warren Buffett’s
offer to reinsure $800 billion in guarantees on municipal debt would further
enrich Buffett while doing nothing to stabilize the insurers.

“I think if it went through it would be the best purchase since the Dutch bought
Manhattan Island from the Indians,” Ross said. “It does not do anything to get
rid of the toxic waste that they have in the portfolios.”

Ross’s comments echoed those of a number of analysts who saw Buffett’s offer as
an attempt to capitalize on bond insurers’ current weakness. Buffett himself said
as much when unveiling the plan Tuesday on CNBC, describing it as an attempt to
make money, not charity.

Bond insurers’ key AAA credit ratings have come under pressure as losses on
securities they’ve guaranteed pile up. A loss of those ratings could lead to
downgrades of insured securities.

The insurers play a key role in credit markets, guaranteeing payments on $2.4
billion in debt, most of it issued by municipalities that would otherwise pay
higher rates. Much of the remainder involves complex securities that have plunged
in value. Wall Street banks bought much of that insurance to hedge their
positions and face further write-downs if downgrades continue.

Buffett has offered to reinsure part of insurers’ much less risky municipal bond
portfolios at high cost. That would still leave units of companies such as MBIA
Inc. (MBI) and Ambac Financial Group Inc. (ABK) fully exposed to their troubled
portfolios of insurance on other securities like collateralized debt obligations.
As a result, the offer is likely to fail, Ross said.

Ross is in talks with insurers about a possible investment. On Wednesday, he
reiterated that he hopes to make a decision in the next few weeks.

“I think we are within a few weeks of coming to a friendly solution that will be
agreed with the parties,” he told CNBC.

-By Andrew Dowell, Dow Jones Newswires; 201-938-5175; andrew.dowell@dowjones.com

(END) Dow Jones Newswires

February 13, 2008 08:34 ET (13:34 GMT)

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