MBIA CEO Discusses Q3 2010 Results - Earnings Call Transcript

MBIA Inc. (MBI)

Q3 2010 Earnings Call

November 10, 2010 8:00 am ET

Executives

Greg Diamond - MD, IR

Jay Brown - CEO

Chuck Chaplin - President, CFO and CAO

Analysts

Darin Arita - Deutsche Bank

Marie Lunackova - UBS

David Williams - CQS

Presentation

Operator

Good morning and welcome to the MBIA Incorporated third quarter 2010 financial results conference call. (Operator Instructions)

I would now like to turn the call over to Greg Diamond, Managing Director of Investor Relations at MBIA.

Greg Diamond

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Welcome to MBIA's conference call for our third quarter 2010 financial results. We're going to follow the same format as last quarter's call. Jay and Chuck will provide some comments prior to holding a Q&A session.

Yesterday afternoon, we posted several items on our website, including our 10-Q and quarterly operating supplement. The information for accessing the recorded replay of today's call is included in our third quarter financial results press release, which is also available on our website.

Our company's definitive disclosures are incorporated in our SEC filings. The purpose of our call today is to discuss some of the disclosures in our most recent 10-Q to facilitate a greater understanding for investors. The 10-Q also contains information that will not be addressed on today's call.

Please note that anything that we say on today's call is qualified by the information provided in the 10-Q and our other SEC filings. Please read our 10-Q as it contains our most current and comprehensive disclosures about the company and its financial and operating performance.

Today's Q&A session would be handled by Jay Brown, CEO; and Chuck Chaplin, President, CFO and Chief Administrative Officer.

Now for our Safe Harbor disclosure. Our remarks on this conference call may contain forward-looking statements. Important factors such as the general market conditions and the competitive environment could cause actual results to differ materially from those projected in our forward-looking statements. Risk factors are detailed in our 10-K, which is available on our website at www.mbia.com.

The company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. In addition, the definitions of the non-GAAP terms that are included in our remarks today may also be found on our website.

Before we begin the Q&A session, Jay will provide some introductory comments. Jay.

Jay Brown

I just would like to touch on a few things that occurred during the quarter, and then a couple of general comments, kind of an overview of where we are in the mortgage area and in the litigation area.

In terms of the quarter, the quarter as Chuck will go through in detail was impacted by five different types of transactions, all of which are detailed in different parts of our financial statement but are not always easy to understand exactly what the impacts were. Some good transactions occurred late at the beginning of the quarter and we talked about them on the last conference call.

First, we had a significant commutation of $4.4 billion of par reduction for approximately $70 million going out the door. We announced last quarter that $2.9 million was done immediately. It's not been completed in the $4.4 billion of exposures left to our books.

There are no other commutations that we are going to announce today, although I do expect that you're going to see a number of them occur in the fourth quarter, which we'll discuss approximately 90 days from now. Second, we did have at the beginning of the quarter our first recovery outside of litigation involving RMBS put backs. This recovery occurred early in the quarter.

Unlike the commutation which involved about $70 million going out the door, the recovery involved about $50 million in payments coming in the door, net payments to the company.

The next two transactions that were important were really Channel Re and CapMAC. Channel Re was our reinsurer that we established several years ago. During the quarter, we purchased the remaining shares that we owned by third parties. We commuted all of the existing reinsurance and then liquidated the company.

This was an important part of our transformation strategy to simplify the structure of the company. And Chuck will take you through some of the important financial details associated with that transaction. Second, we merged CapMAC, which was a dormant company that we acquired back in 1998. We merged it into MBIA Corp., again, to simplify our structure.

This sort of increases our liquidity and it appears in a couple different parts to the financial statement, both in terms of increased assets on MBIA Corp's balance sheet directly and a change in the invested assets, and Chuck will go through that a little bit.

The last significant transaction that occurred in the quarter is, we were able to finally sell an asset that had been under remediation for the better part of the last two-and-a-half years. We have purchased a number of the bonds associated with that. In the course of the remediation the asset was sold in the third quarter and the company received a substantial amount of liquidity in return for those bonds that we then owned, and this was an important remediation.

The net overall effect was basically neutral to the company over the two-and-a-half years, but the timing of when losses occurred and FX changes because it was outside of the United States and appears in a couple of different parts in the financial statement, again, confusing us.

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