Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Why Is MBIA Down So Big?

By

This is the company's largest fall since being listed. MBI posted its first quarterly loss and discontinued stock buybacks.

PrintPRINT

A question recently came up on MBIA (MBI) because it is down $9 and change today.

Here's why:

  • It's the company's largest fall since being listed. MBI posted its first quarterly loss and discontinued stock buybacks.
    • During the company's conference call the CEO, Chuck Chaplin said the company will halt stock buybacks to retain capital because of weakness in the housing and structured finance markets. The comment was, obviously, taken badly.
    • Reading through the release/notes from the call: MTM losses were substantially higher than expected. $342 million versus $175 million. The question was brought up as to why it marked to model, at a better rate, than what the Street was reporting for similar assets - management did not have a good answer.
    • Insurance premiums earned were worse than anticipated. Management did not have a good vision on where near-term growth is coming from, given collapse of structured finance insurance.


The Okay (there was no real good):

  • The company did not insure a single RMBS deal during the quarter.
  • Subprime exposure has gone down dramatically and new disclosures were made about subprime exposure.
    • As it stands subprime/ABS exposure is a pretty small component of MBIA's asset/liability investment portfolio, which totals $25.8 billion. The portfolio includes $497 million (2.0%) of direct U.S. subprime RMBS and $1,798 million (7.0%) of ABS CDOs. Within the ABS CDOs, there is $696 million of subprime RMBS.
    • All of the subprime RMBS and ABS CDO investments are rated Triple-A, except for $2.0 million which is rated Double-A. The total subprime exposure in the asset/liability investment portfolio is $2,295 million, 59% of which is insured (by either a monoline guaranty or other credit protection), with 10% insured by MBIA.
    • None of the ratings of MBIA's subprime RMBS or ABS CDO holdings were downgraded in the recent rating agency actions as of October 24, 2007.


      Click here to enlarge.

    • None of the 2005-2007 CDOs that MBIA wrapped were effected by the ratings agency downgrades.
    • Most of the company's CDO participations are still rated triple A.
    • Excess capital is in excess of $1 billion.


Bottomline: The loss was certainly disappointing, the conference call left a lot of questions unanswered and MBIA's core business, insuring bonds, does not have a lot of upside catalysts. But to put it into perspective, the markdown amounted to about a 2 percent capital charge versus the 12 percent of equity cap just erased from the stock. Also, trading at less than 1x book and 7x forward earnings, MBI is at the far range of its historical multiples. While I don't want to suggest catching a falling knife, I think that in the next couple of days there will be more clarity, analysts will take down their numbers and the downside, short-term will largely be priced in. MBI might be setting up well for a skew trade. If appropriate I will come up with a good upside downside range.

Click Here to Purchase John Succo's "A Derivatives Primer: Options, Futures and Structures"

Position in MBI.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE