Banks, bond insurers shares drop on Puerto Rico worries, options see more falls

lunes 29 de junio de 2015 16:20 GYT

By Noel Randewich

SAN FRANCISCO, June 29 (Reuters) - Shares of banks and bond insurers exposed to Puerto Rico plummeted on Monday due to growing fears the U.S. Commonwealth would default on its debts, and options activity on many of those shares hinted at further declines to come.

Bond insurers were hit the hardest. Assured Guaranty shares fell 15.8 percent while MBIA Inc fell 21 percent. Ambac Financial Group dropped 11 percent. All three have sold insurance against potential defaults of Puerto Rican debt.

Retail banks operating in Puerto Rico also suffered. Popular Inc was down 10 percent; OFG Bancorp fell 14 percent and First Bancorp was down 13 percent.

Puerto Rico faces crunch time this week with a June 30 deadline to restructure some of its debt or bump the deadline. Over the last day, former IMF staffers issued a damning report about the U.S. Commonwealth's financial stability and Governor Alejandro Garcia Padilla told The New York Times the island's debts were not payable and that creditors would probably have to take significant concessions. Padilla had previously rejected the possibility of default.

"The uncertainty created by the reversal of (Padilla's) stance makes the bond insurer stocks unbuyable until clarity around the situation develops and the magnitude of the losses the insurers stand to realize becomes more apparent," brokerage BTIG said. It downgraded Assured Guaranty and MBIA to "neutral" from "buy".

Up to Friday's close, MBIA's shares had fallen 13 percent this year, while Assured Guaranty's shares had gained 5.5 percent and Ambac had lost 8 percent.

About 4.2 percent of Assured Guaranty's shares were sold short in mid-June, up from 3.6 percent at the end of May. Close to 4.7 percent of MBIA's shares were short sold in mid-June.

Options volume on Assured Guaranty soared to 79,000 contracts, or 22 times normal, boosted by a hefty put spread where a trader appears to be rolling a large position in January puts down five strikes from $25 to $20.   Continuación...