This story first appeared in SourceMedia's Investment Dealer's Digest.

US bond insurers that play a key role in Wall Street’s debt markets have been hard hit by the subprime crisis — their company shares have dramatically lost value and at least one firm has had trouble raising money — so it stands to reason that employees at the firms are jittery about their jobs and the future of their businesses.

But, recruiters say there has not yet been an exodus from firms like MBIA because bonuses have not yet been paid and a bond insurance business started up by Warren Buffett’s Berkshire Hathaway is still in its early stages. Indeed, a recent regulatory filing made by MBIA acknowledges that the newcomer just licensed to operate in New York could have an adverse effect on its business.

“Professionals in the industry are getting a little more nervous for sure,” says Brian James, co-founder of recruiting firm Link Global Solutions.

Many bond insurers, also called monolines, had substantial exposure to weakening credit markets, leading to speculation that they could have difficulty meeting insurance obligations amid rising defaults.

Monolines sell insurance to banks and investors for a variety of bonds, including asset-backed bonds and collateralized debt obligations. Typically, a so-called insurance wrap is added to a class of securities to improve its credit rating and make it more palatable for investors. If the underlying loans backing the security fail to make monthly payments, the bond insurer steps in to make up for any loss in principal and interest payments.

Many bonds backed by home equity loans have seen an increase in late payments and defaults. There have also been problems related to collateralized debt obligations.

MBIA, Ambac and other bond issuers are struggling to keep their AAA ratings. Shares of MBIA and Ambac, two leading players in the business, were down over 70% last year. In December Fitch Ratings announced that it had placed the AA ratings of MBIA Inc and AAA ratings of MBIA Insurance Corp. and its subsidiaries on rating watch negative. Ambac, which as recently as Dec. 20 insured a bond for roads in Northern Ireland, too has had its AAA rating put on "rating watch negative."

“At MBIA, employees are sitting tight for now as the company does not hold bonus talks till next month, and then they are paid out in March,” says Paul DeLucia, managing partner at the Options Group, an executive search and consulting firm. “Employees know that if they jump ship, another company is not going to pay their bonus this late,” he says.

“Although the staffers don’t expect layoffs, they are aware their company is in for some rough times ahead,” DeLucia says. “There is definitely some nervousness.”

One big issue for MBIA employees is that they get paid in deferred stock. The Armonk, N.Y., bond insurer’s shares have plunged from roughly $70 a share to $13.

MBIA and Ambac did not return calls for comment.

Other companies in the bond insurance business have not been so lucky to come up with capital. ACA Capital, a New York-based bond insurer, agreed to turn over substantial control of its business to Maryland insurance regulators last month.

ACA started to have trouble in mid-December when Standard & Poor’s downgraded ACA Financial Guaranty Corp. to a junk CCC rating from an investment-grade A.

Layoffs have started at ACA Capital, according to recruiters. An ACA Capital spokesperson did not return calls for comment.

Layoffs at monolines may not be as dramatic as job cuts in other industries hit by the credit crunch where hundreds of employees have been fired. One advantage is that the staff at monoline companies is fairly small relative to company revenues, notes Jim Ryan, analyst at Chicago-based Morningstar.

The career path for a monoline professional often involves first working at a rating agency or an investment bank. “If an employee at a rating agency is thinking of leaving, their options are to start working in structured finance at an investment bank, work long hours and make good money, or they can go to work for a monoline and work a lot less hours,” according to Andre Cappon, president and founding partner at CBM Group, a New York-based financial consulting company. “The three professional communities are very porous,” says Cappon.

But these days, the credit crisis has affected banks, rating agencies and bond insurers so it’s difficult to readily shift from one business to another. “In general, the entire job market is getting squeezed and there are fewer opportunities in the market,” says DeLucia.

Meanwhile, Berkshire Hathaway’s foray into the bond insurance business has created a stir.

The new venture will be called Berkshire Hathaway Assurance Corp. and the billionaire has, initially, staked $105 million to the insurer. But, industry observers say that if Buffett is truly committed to the business he may need to invest more.

Berkshire’s venture will likely take six months to get fully up and running, and the logical step would be to poach professionals from existing monoline firms, particularly those with municipal debt experience, Berkshire’s first focus, according to some recruiting specialists.

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