MBIA keeps top credit rating

MBIA Inc., the world’s largest bond insurer, held onto its top credit ratings from Standard & Poor’s on Monday, quieting fears that downgrades by S&P; would worsen the long-running credit crisis.

S&P; said it grew more confident about MBIA’s stability after the insurer this year raised $2.6 billion by issuing new shares and debt. But the outlook for MBIA’s ratings over the next six months to two years remains negative because of the size of its potential losses compared with the insurer’s capital cushion, S&P; said.

Stocks surged after the report, but the bond insurance crisis is far from over. The main unit at Ambac Financial Group Inc., the second-largest bond insurer, may still lose its top ratings, S&P; said. A deal to provide the insurer with more capital isn’t expected to be signed until early next week.

MBIA said Monday that it would eliminate its dividend, saving the company $174 million a year. The insurer also said it would stop entering into derivative credit contracts and would suspend for six months its issuance of policies on asset-backed securities.

Bond insurers are expected to make big payouts in coming years after guaranteeing securities backed by sub-prime mortgages and other risky debt. But difficulty in nailing down the size of expected losses makes it hard to determine how much capital the insurers, which guarantee more than $2.4 trillion of securities, will need long-term.

Ambac is expected to raise about $3 billion in a deal it is working out with banks, regulators and other parties.

Holding onto top credit ratings is crucial for bond insurers, whose traditional business is guaranteeing municipal bonds against default.

Shares of bond insurers surged on the S&P; announcement. MBIA rose $2.40, or 20%, to $14.58. Ambac climbed $1.70, or 16%, to $12.41.