NEW YORK (
(MBI - Get Report)'s third quarter earnings missed analyst estimates, but demonstrated the bond insurer maintains sufficient liquidity to continue its legal battle with
Bank of America
(BAC - Get Report) over subprime mortgages, according to at least two analysts.
In a note published Wednesday, Standard and Poor's left its rating on MBIA unchanged, contending that it has sufficient "cash and short-term investments to cover its debt-servicing needs and operating-expense obligations through 2013."
BTIG equity analyst Mark Palmer concurred in a report published Thursday. Palmer has a buy rating and target price of $22 on MBIA versus its $9.25 price in early trading Thursday.
Palmer wrote that though MBIA's third quarter earnings release, operating supplement and 10-Q "contain an ocean of figures, there is one amount that really matters, in our view: $386
. That was the liquidity position of MBIA Insurance, the company's structured products unit, at quarter end. And we believe that amount should be sufficient to sustain the unit and to preserve the company's optionality as it continues its legal battles with Bank of America/Countrywide (and Societe Generale) and its efforts to collect its mortgage-putback recoverable from the bank," he wrote.
Palmer noted that while MBIA's $386 million in liquidity represented a decline from the $543 million in liquidity that MBIA Insurance showed at the end of the second quarter, it is still higher than the $329 million it posted at the end of the first quarter.
Palmer--as well as other analysts such as Deutsche Bank's Matt O'Connor-- expect Bank of America to ultimately settle its dispute with MBIA for $2 billion Palmer believes that settlement would also resolve Bank of America's challenge to MBIA's February 2009 reorganization which split off National--its municipal bond insurance unit--from its mortgage backed securities liabilities.
"If MBIA is able to resolve the litigation challenging its Feb-09 split through a settlement or court judgment, the value of National will be unlocked and will flow up to the holding company and to shareholders," Palmer wrote.
Written by Dan Freed in New York