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BL: Buffett Says Bond Insurers Don't Deserve AAA Rating (Update1)

By Erik Holm and Josh P. Hamilton

May 4 (Bloomberg) -- Billionaire Warren Buffett, whose Berkshire Hathaway Inc. has begun competing with MBIA Inc. and Ambac Financial Group Inc. to insure municipal bonds, said some rivals don't deserve their AAA credit ratings.

Credit-rating firms shouldn't be giving top grades to bond insurers that borrow money at 14 percent or whose stock has dropped 95 percent, Buffett said at a press conference today in Omaha, Nebraska, after Berkshire's annual meeting.

Berkshire, whose credit is also rated AAA, owns almost 20 percent of Moody's Corp., one of the biggest U.S. credit rating firms. That's attracted scrutiny from Connecticut Attorney General Richard Blumenthal, who said in an interview last week he's probing possible conflicts of interest between Berkshire's four-month-old bond insurer and the stake in Moody's. Buffett said yesterday he's never tried to influence the firm.

Buffett created the bond insurer in December after state regulators sought to help governments get coverage when losses jeopardized the AAA ratings of bond insurers MBIA and Ambac. States and municipalities buy bond insurance to raise the rating on their debt, lowering the interest rate and saving taxpayers money.

Ambac has dropped 94 percent in the past 12 months of New York Stock Exchange trading, and MBIA has tumbled 84 percent.

Berkshire's municipal bond unit is now licensed in 49 states and plans to write more insurance, Buffett said.

To contact the reporters on this story: Erik Holm in Omaha, Nebraska at [e-mail]; Josh P. Hamilton in Omaha at [e-mail]
Last Updated: May 4, 2008 16:09 EDT