Warren Buffett offered for $5 billion municipal bond liabilities of three bond insurance companies worth $800 billion.

U.S. stocks futures rose ahead of market opening after a report that Warren Buffett, chairman of Berkshire Hathaway Inc offered to reinsure municipal bonds insured by three largest bond insurance companies, FGIC, MBIA, and Ambac Financial Group.

The offer first reported on CNBC television network and later on quoted in Bloomberg news was turned down by one insurer and still under consideration by the other two.

The offer from Buffett includes a plan to inject $5 billion in capital guarantee to insure bond liabilities worth $800 billion. The new capital from Berkshire will secure a rating of AAA from the rating agencies and protect the bond holders from future downgrades of securities.

The offer does not include the sub-prime loans that are at the center of credit market malaise.

It is not clear why will bond insurers bite such an offer. The Buffett offer only includes the healthy part of the business and will also be thinly capitalized. To cover $800 billion liabilities with less than 0.6% of capital in the current market environment may not calm financial markets.


Separately, bond insurers can also spin-off these liabilities as a separate subsidiaries and protect cash flow and secure higher bond ratings on these bonds that are relatively stable and credit loss free.

6:00Am New York, 6:00PM Hong-Kong – In subdued trading stocks recovered on rising metals and oil prices. Foreign reserves increase to $160 billion.

Stocks in Hong Kong rose in cautious trading led by resurgent oil and rising commodity prices as metal production in China remains disrupted on weather conditions. Trading volumes also remained depressed as the China A-share market remains closed.

Market Sentiment

In Hong Kong trading the benchmark Hang Seng Index advanced 1.4% or 305.56 to 22,921.67, and the China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, climbed 1.6 %, or 206.09 to 12,736.69.

Daily turnover on main-board was HK$67.2 billion compared to HK$76.4 billion yesterday.

Forex Reserves Rise

The Hong Kong Monetary Authority announced on its website yesterday that the country’s official foreign currency reserve assets reached $159.9 billion at the end of January.

According the authority, including unsettled forward contracts foreign currency reserve assets also stood at $159.9 billion from $152.7 billion at the end of December.

“The $7.2 billion increase in settled foreign currency assets in the month of January was due mainly to the purchase of foreign currencies with Hong Kong dollars and an increase in Certificates of Indebtedness, reflecting the seasonal demand for banknotes around the Lunar New Year,” said HKMA.

Cumulative foreign currency reserve assets at $159.9 billion represents 38% of Hong Kong dollar M3 money supply.

China and Indonesia trade volumes Increase

China People’s Daily online reported today Indonesian ambassador to China Sudrajat said that trade volumes between Indonesia and China rose 30% to $25 billion exceeding the target of $20 billion set for 2008.