MBIA Inc. (MBI)
Q2 2010 Earnings Call Transcript
August 10, 2010 8:00 am ET
Greg Diamond – Managing Director, IR
Jay Brown – CEO
Chuck Chaplin – President, Chief Administrative Officer and CFO
Darin Arita – Deutsche Bank
Ali Lumsden – CQS Management
David Faber [ph] – Mason Capital
Mike Stroyer [ph] – Stonehill Capital
Good morning and welcome to the MBIA Incorporated second quarter 2010 financial results conference call. At this time, all lines are in a listen-only mode to prevent any background noise. After the prepared remarks from the company, there will be a question-and-answer session.
I would now like to turn the conference over to Greg Diamond, Managing Director of Investor Relations at MBIA. Please go ahead, sir.
Thank you, Christy. Welcome to MBIA’s conference call for our second 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 question-and answer-session.
We have posted several items on our Web site, including our second quarter 2010 Form 10-Q and our second quarter operating supplement. The information for accessing the recorded replay of today’s call is included in our financial results press release, which is also available on the Web site.
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 this call is qualified by the information provided in the 10-Q and our other SEC filings. You should read our Form 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 will be handled by Jay Brown, CEO; and Chuck Chaplin, President, CFO and Chief Administrative Officer.
Now for our Safe Harbor disclosure statement. 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 in our forward-looking statements. Risk factors are detailed in our 10-K, which is available on our Web site at
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 Web site.
Before we begin the Q&A session, Jay and Chuck will provide some introductory comments. Jay?
Thanks, Greg. When I accepted your Board’s invitation to rejoin MBIA in February 2008, I did so knowing that the company was facing the most serious challenge in its then 34-year history. However, as I noted at that time that the company was well capitalized and well-positioned to satisfy its claims, payments, obligations, even under a wide variety of adverse scenarios. The passage of time has proven the durability of our balance sheets.
As to-date, we have honored all claims and we expect to continue to do so even in the phase of a scenario far more adverse than we had anticipated, where almost $5 billion has been paid out on RMBS transactions that were largely non-compliant with the terms and conditions of our insurance coverage. I will have more on that later.
Many of you’ll remember that one of my first actions upon returning to MBI was to set forth a five-year plan for the transformation of the company. At the same time, I also expressed my personal view that the bond insurance industry needed to be redesigned.
To that end, I shared with you our principals of transformation, which outlined our plan to reestablish our core bond insurance franchise and begin rebuilding value for our shareholders.
With the halfway point of this five-year period now upon us, it seems like a good time to recall what has been accomplished and what remains to be done. Most notably, we spent a year working extensively with the New York State Insurance Department and others to create a new U.S. public finance-only bond insurance company.
While National has been up and running for 18 months now, some parties have chosen to contest its existence and have initiated legal action. We believe that the uncertainty caused by this litigation has prevented National from receiving high enough ratings from S&P and Moody’s.
Despite being extremely well capitalized, the company has been unable to write any new business. Nonetheless, we remain very confident that the litigation will be resolved in our favor, which should lead to ratings upgrades for National, and allow it to reengage with U.S. municipal bond market and provide much needed insurance capacity to issuers and investors.
I should also note that consistent with our transformation plan, National’s statutory earned surplus was reached at, affected as of the beginning of this year, following its re-domestication to New York. This positions the company to pay dividends in the future to support its capital structure. Given the very strong cash position at our holding company, we have no need or plans to paying any dividends until the transformation litigation is ultimately resolved.
Earlier this year, we renamed and reorganized our asset management operation, so that it no longer relies on leveraging the bond insurance business for the majority of its revenue.