On Wednesday, more than 89 minutes after the close of trading and just 23 seconds ahead of the end-of-day deadline in this holiday-shortened week, a regulatory filing by MBIA alerted the handful of people paying attention at that hour that its board had approved $11.4 million in cash "retention" awards to four of its top executives.
Edward Chaplin, the CFO and William Fallon, the President and COO, will each get $3.5 million, while Anthony McKiernan, the chief portfolio officer, will get $2 million, and Ram Wertheim, the chief legal officer, will receive $2.4 million.
The executives will also split 2 million shares between them, with 600,000 each for Chaplin and Fallon and 400,000 each for McKiernan and Wertheim. These are subject to a fairly complex vesting formula, but if MBIA shares trade at $25 by the end of 2015 and tread water for the next two years, they would get the entire 2 million shares, which would be worth $50 million.?
While $25 seems like a long way from the $7.95 closing price for MBIA shares on Tuesday, it is consistent with the bullish thesis for the shares put forward by at least three sell-side analysts who follow the company.
That thesis has MBIA winning a roughly $2-3 billion settlement from Bank of America (NYSE:BAC)
Twenty-five dollars per share also doesn't seem like such a stretch if you consider that MBIA's adjusted book value at the end of the third quarter was $30.64. While that measure does not adhere to generally accepted accounting principles, it assumes no new business activity, according to the insurer's latest quarterly filing.
Twenty five dollars per share does seem like a stretch, however, if you consider that MBIA's subprime unit had $534 million in cash at the end of the second quarter, and $386 million at the end of the third quarter. In the fourth quarter, we know it spent roughly $170 million to buy back some of its bonds. So even assuming it spent no other cash than that and the $11.4 million, we are at just over $200 million, meaning the unit could easily run out of cash in the first or second quarter of 2013.
That won't matter if MBIA reaches the settlement with Bank of America that bulls are anticipating beforehand, but if it doesn't, the MBIA executives still make a cool $11.4 million.
In other words, the MBIA executives get $11.4 million if things go badly and $61.4 million if they work out. There doesn't appear to be much in between.
BTIG analyst Mark Palmer (one of the bullish analysts I referred to) isn't bothered by the payouts announced Wednesday.
"The amounts in question are modest relative to typical executive compensation packages, and the four executives are among the handful of key players for the company as it manages its way through the litigation period and beyond," he wrote me via email Wednesday night.
Palmer also contends that MBIA's regulator, the New York Department of Financial Services, "has the ability to step in and block the payment of bonuses." Indeed, it did just that in 2011, according to MBIA's March 19 proxy filing.
"If the DFS allows the payments to be made, it is presumably comfortable with the company's situation and access to resources," Palmer wrote.
Indeed, New York's Superintendent of Financial Services, Benjamin Lawsky, has shown he is willing to be aggressive in going after companies he regulates. A case he brought against Standard Chartered Bank in August drew anonymous sniping from other regulators who claimed he was too hasty.
The NYDFS couldn't be reached late Wednesday and an email to MBIA spokesman Kevin Brown wasn't returned.