By Patrick M. Fitzgibbons NEW YORK (Reuters) - MBIA Inc (MBI.N) said on Thursday it
will have enough cash to meet its commitments even after
reporting a worse-than-expected quarterly loss, while Standard
%26amp; Poor’s is reviewing the top ratings it gave to the world’s
largest bond insurer. Still, U.S. bond insurers’ shares staged a comeback after
MBIA held a marathon conference call to reassure investors.
U.S. government bonds also rose on a wave of safe-haven buying
following a rating agency cut of an MBIA rival. Speculation about looming cuts in credit ratings for bond
insurers has battered the U.S. stock market in recent sessions,
though the shares were broadly higher Thursday. Despite gloomy
employment data Thursday, financial stocks rebounded. MBIA shares closed up 11 percent at $15.50, and Ambac
Financial Group Inc (ABK.N) jumped 9.2 percent at $11.72, both
on the New York Stock Exchange. MBIA stock has tumbled about 50
percent this year, while Ambac has plummeted almost 70 percent. Late Thursday, rating agency S%26amp;P cut its ratings on smaller
MBIA competitor FGIC Corp’s bond insurance arm, and placed its
top ratings on MBIA on review for a possible downgrade. The rating agency also said it may cut the “AAA” rating of
XL Capital Assurance Inc, the bond insurance arm of Security
Capital Assurance (SCA.N). S%26amp;P cut Financial Guaranty Insurance Co’s “AAA” insurer
financial strength rating by two notches to “AA.” It also cut
parent company FGIC Corp’s long-term rating by three notches to
“A” from “AA.” FGIC is owned by a group that includes mortgage insurer PMI
Group Inc (PMI.N) and private equity firms Blackstone Group LP
(BX.N), Cypress Group and CIVC Partners LP. The fortunes of the bond insurers have moved center stage
in the global credit crisis that began last summer after
defaults soared on U.S. subprime mortgages, causing losses for
banks, funds and insurers. The insurers have guaranteed municipal and consumer debt
worth about $2.4 trillion, of which about $900 million is
“structured finance” debt, including mortgage bonds held in
collateralized debt obligations (CDOs). S%26amp;P’s main competitor, Moody’s Investors Service, is also
reviewing MBIA and the entire bond insurance sector.
THE LOSSES Just after midnight EST on Thursday, MBIA reported a loss
of $2.3 billion, or $18.61 a share, versus a profit of $181
million, or $1.32 a share, a year earlier. On an operating basis, MBIA lost $3.30 a share, wider than
the Wall Street expectation of $2.97, according to Reuters
Estimates. MBIA said it was writing down $3.5 billion in its credit
derivatives portfolio, including a credit impairment of $200
million. It also set aside $713.5 million, including $100 million
for an unallocated loss reserve for MBIA’s prime, second-lien
mortgage exposure. Despite the poor results, investors were cheered by MBIA’s
declaration it could raise new cash to meet its commitments. There is “reassurance from MBIA today that they have
sufficient capital to cover its needs,” said Tom Sowanick,
chief investment strategist for Clearbrook Financial LLC in New
York. Investors and analysts still had many questions about the
company’s finances. Its quarterly conference call lasted about
four hours — versus last quarter’s 1 hour and 42 minutes.
THE QUIZ SHOW Many of the most contentious points were raised by William
Ackman of hedge fund Pershing Square Capital Management, who
claimed in a letter Wednesday that Ambac and MBIA face combined
losses of over $23 billion from bonds they have insured. He
said the companies should be forced to stop paying dividends. Pershing Square has shorted Ambac and MBIA shares, meaning
it will profit if the stock drops. Company officials specifically disputed his claims. MBIA called Ackman’s model “a black box,” containing
“extreme assumptions” that produced desired results. They added
that the model does not account for cash flow and required
payments on deals in which the insurer might participate. MBIA, which guarantees municipal bonds and repackaged
consumer debt, said it sold $1 billion in surplus notes to
boost its capital levels earlier this month. Chief Executive Gary Dunton said the measures would offset
the cash it needed to set aside during the quarter. “We believe that these steps, along with reduced capital
requirements resulting from slower business growth, will result
in our capital position surpassing rating agency Triple-A
requirements … and will allow us to continue serving the
needs of our clients and investors,” he said in a statement. The company also said it would obtain further cash
infusions as needed.
SEES “AFFIRMATIVE” OUTCOME Chief Financial Officer C. Edward Chaplin said on the call
the bond insurer would continue to work with Moody’s to keep
its credit rating at triple-A and believes the outcome of a
Moody’s review will be “affirmative.” S%26amp;P’s actions came one day after the rating agency said
total losses for financial institutions from continuing
mortgage market problems will eventually total more than $265
billion. Some wider market data about the municipal market could
also raise concerns about MBIA and the bond insurance industry. On Thursday, Thomson Financial said that U.S. municipal
bond volume dropped 47 percent in January from a year earlier
and only 32 percent of all securities sold this month were
insured compared with more than half guaranteed a year ago. But MBIA’s CFO said the company’s outlook is not that dire. “There is no scenario that we can identify that would
result in MBIA becoming insolvent, having a liquidity event or
being intervened with by the regulator, and experiencing a
default of any kind,” Chaplin said. Fears about the U.S. credit situation have spread across
the globe. Soured bets on investments tied to the U.S. subprime
mortgage market have cost Japan’s top three banks $4.7 billion
so far, and analysts predict more pain ahead. (Additional reporting by Dan Wilchins, Burton Frierson,
Anastasija Johnson, Neil Shah, Walden Siew, Karen Brettell,
Jonathan Stempel, Lilla Zuill and Ellis Mnyandu in New York;
Editing by Brian Moss/Jeffrey Benkoe)
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