The worst may be far from over for bond insurers, an analyst said Thursday after Moody's Investors Service said it may cut its 'AAA' ratings on MBIA and Ambac.
Banc of America Securities analyst Tamara Kravec predicted further downgrades may be coming.
MBIA and Ambac will be "essentially shut down to new business ... since a downgrade further impacts the credibility of both companies and we believe the sector as a whole," Kravec said in a note to clients.
Investors, she said, should steer clear of the industry until more information is available on its losses and the liquidity crisis has passed.
Yet Assured Guaranty Ltd. may actually benefit from the turmoil, given that it is in a position to gain market share at the expense of its "troubled peers," she said.
"We believe the story for the bond insurers is far from over and in our view it is highly likely that Assured Guaranty will emerge as the dominant player, but the market will likely be very different after the credit cycle has run its course," she said.