MBIA Shares Rise, Despite Big Loss
Shares of
MBIA
(MBI) - Get Report
were rising Monday, even after the company posted a $2.4 billion first-quarter loss as it continues to struggle under the weight of credit derivative losses.
The Armonk, N.Y.-based firm logged $3.6 billion in unrealized losses on credit default swaps that resulted in a quarterly loss of $13.03 per share, vs. a profit of $1.46 a share in the year-ago quarter.
Despite the results, MBIA shares were on the rise Monday, moving up 6.2% to $10.01. CEO Jay Brown stressed in a company statement that even though results were disappointing, they were consistent with the severe credit market conditions.
"MBIA continues to be a sound financial institution," Brown said in a company statement. "We have ample liquidity, our balance sheet is built to withstand credit stress levels many multiples of what we're experiencing now, and our business model is proving that we are adequately capitalized to satisfy any potential claims on our insured portfolio."
The bond insurer earlier this year raised some $2.5 billion from private-equity firm Warburg Pincus and public investors and eliminated its quarterly dividend to preserve capital. It made the moves amid pressure from the major ratings agencies, which were concerned the company and rival financial guarantors like
Ambac Financial
(ABK)
did not have enough capital to withstand mounting defaults of structured finance products they insure.
The price that MBIA paid for its new capital was extremely dilutive to shareholders, but raising the money allowed it to maintain its triple-A credit rating, allowing it to win new business. New business, however, is hard to come by. MBIA's first-quarter premiums plunged 84% and half of the $43.5 million that came in was from one transaction that had been in the pipeline before the first quarter.
MBIA acknowledged it made inaccurate underwriting assumptions for some of the structured finance products it insures. Portfolios originated during 2006 and 2007 were based on credit scores, which had proved reliable in the past. But loans supported by little documentation, high loan-to-value ratios and non-owner occupied buildings led to higher risk and more delinquencies. MBIA has $4.2 billion in direct exposure to subprime mortgages.
The stock has lost 86% of it value over the last year and closed on Friday at $9.43. Standard & Poor's equity analyst Catherine Seifert rates the stock a sell with an $8 target price. Looking ahead, she says MBIA will be fighting to bring in new business while it pays for the sins of its past. The company will have to begin making payments on impaired collateralized debt obligations, or CDOs, in 2009 and will be making payments for the next four to five years, she notes.
MBIA and Ambac -- which also has raised money in an effort to maintain its credit rating -- are also under pressure in the form of added competition.
Berkshire Hathaway Assurance
(BRK.A) - Get Report
entered the municipal bond insurance field last year.
Assured Guaranty
(AGO) - Get Report
, the bond insurance outfit bought by Wilbur Ross, also reported losses last week, but is still paying a dividend.
Security Capital Assurance
(SCA) - Get Report
delivered a losing quarter as well, but it wasn't as bad as the others and investors pushed the stock up slightly.
Rival insurers
Radian
(RDN) - Get Report
, up 4.6%, and
PMI Group
(PMI)
, down fractionally, were mixed in trading.