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There's irony in the bond insurance business these days.


(MBI) - Get MBIA Inc. Report

, reporting its first-quarter results after the market close Monday, posted a profit for the first time in five quarters, surpassing analysts' expectations by a large margin.

But those numbers -- EPS of $3.34 compared with analysts' targets of a 33-cent loss -- were completely the result of marked-to-market gains of $1.6 billion, based on the controversial fair-value accounting rules that let companies book gains if their bond prices fall.

Theoretically, if MBIA were to buy back its bonds at current market prices, it would effectively refinance its debt and improve its balance sheet and profit margins. But the whole thing is operative only if bond prices fall, and, in MBIA's case, its bond prices fell because many investors are wondering if the company will remain solvent.

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In other words, pretty much the only reason MBIA made money in the first quarter is that it's business actually worsened.

Interestingly, the company did not report an adjusted EPS figure to take that $1.6 billion gain into account.

MBIA's underlying business remains horrible. And the company admitted as such. It didn't write any new policies in the quarter, and it doesn't expect to in the near future. Combined, the company's insurance units lost $39 million in the first quarter, compared with a net gain in premiums written of $106 million last year.

MBIA controversially split itself in two back in February, moving its decently performing municipal bond businesses into a different company, and keeping the toxic structured-finance businesses to itself. The company is facing a slew of litigation from counterparties -- investors in credit that defaulted and who are demanding payment from MBIA on their insurance claims.

Shares of MBIA were essentially flat in frantic midday trading Monday, changing hands at $7.03 on volume of more than 12 million, nearly double the daily average.

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