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MBIA Shares Jump as Davis Ups Stake

Days after a big investment in Merrill, the money manager buys more of the bond insurer.

MBIA

(MBI) - Get Report

surged more than 12% Wednesday after Davis Selected Advisers bought a substantial stake in the Armonk, N.Y.-based bond insurer.

The Tucson, Ariz.-based money management firm significantly increased its holding to 6.4 million shares, or a 5.1% stake in MBIA, according to a Schedule 13G filing with the

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Securities and Exchange Commission

. Schedule 13G filings typically denote that the investor intends to take a passive stake in a company.

Davis, which manages $100 billion in assets, had owned 481,021 shares of MBIA as of Sept. 30, according to SEC filings. The firm's full stake is now valued almost $129 million, as of Monday's closing price of $20.12.

The news comes just two days after

Merrill Lynch

(MER)

said Davis and Temasek Holdings, a Singaporean state-owned investment company, plans to invest

a combined $6.2 billion in the troubled brokerage firm to help it shore up capital as it braces for more writedowns on its collateralized debt obligations, or CDOs, this quarter. Davis plans to purchase $1.2 billion in Merrill's common stock over the next few weeks.

Like Merrill, MBIA's stock has been hit hard as a result of the credit crunch. Investors are increasingly concerned that the credit market woes that have roiled financial markets in the second half of this year will intensify with the potential default or credit rating slide for a financial guarantor.

Last week, Fitch Ratings slapped a

rating warning on the company over concerns about its significant exposure to risky asset-backed commercial paper. MBIA said last week that it has $8.1 billion worth of structured products called CDOs-squared, among some $30.6 billion in total exposure to CDOs. That means MBIA guarantees payment on CDOs that package up other CDOs. Many are filled with subprime or other mortgage-backed debt, which has been subject to downgrades, deterioration in value and defaults of late.

Fitch said MBIA needed to shore up $1 billion in capital in the next four to six weeks to avoid a downgrade. That's on top of the $1 billion investment from the private-equity firm Warburg Pincus that MBIA secured earlier this month.

The rating agency followed up by making the same warning to MBIA rival

Ambac

(ABK)

on Friday.

Shares of MBIA, which have lost more than two-thirds of its value this year, soared as high as $22.67 Wednesday but more recently were up $1.73 to $21.85. Ambac jumped more than 13% but more recently was up 9% to $29.08.