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Monday, May 12, 2008

MBIA Reports $2.4 Billion 1Q Loss, Downstreams Cash to Sub

The news on MBIA reveals a bit of revisionist reporting.

The Armonk based bond insurer posted a first quarter loss of $2.4 billion. The Financial Times says that that red ink was twice what analysts expected; the initial story at Bloomberg (hat tip Andrew Clavell) apparently made similar comments.

But the stock is up, and what does the Bloomberg headline now say? “MBIA Rises After Loss Is Narrower Than Some Estimates.” That piece now conforms to the new reality;

MBIA Inc., the ailing bond insurer, rose in New York Stock Exchange trading after saying it will pump $900 million into its insurance unit and reporting a first-quarter loss that was narrower than some analysts’ estimates.

MBIA, whose market value has slumped 87 percent in the past year, gained as much as 9.8 percent as the company reported a net loss of $2.4 billion and an operating loss of $3.01 a share. Bank of America analyst Tamara Kravec yesterday revised her estimate to a loss of $5.02 a share, from 99 cents…..

“Anything less than catastrophic is deemed to be good in this market,” Greg Peters, director of credit strategy at Morgan Stanley in New York said in an interview.

Further reporting from the Financial Times:

MBIA, the world’s largest bond insurer, on Monday reported a $2.4bn loss for the first quarter as it took billions of dollars of writedowns on derivatives contracts amid ongoing credit market deterioration.

The loss was more than twice analysts’ estimates, equating to $13.03 a share for the quarter, compared with profits of $198.6m, or $1.46 a share, for the first quarter of 2007.

MBIA was forced to reduce the value of securities it has insured through derivatives trades by $3.6bn in the first quarter as credit markets tumbled. Unlike traditional insurance on corporate or municipal bonds, the value of derivatives contracts called credit default swaps must be priced at the end of each quarter at current market value.

However, while MBIA acknowledged that the mark-to-market adjustment was “attention-getting”, it did not believe the writedown was representative of actual losses on the insured securities.

Topics: Credit markets

Email This Post Email This Post Posted by Yves Smith at 12:28 pm

5 Comments » Links to this post

5 Comments:

  • James says:
    May 12, 2008 at 1:57 pm

    The US is in the biggest period of denial ever.

  • RK says:
    May 12, 2008 at 3:32 pm

    Eric Dinallo appeared on CNBC today at 11:30 and said that, while the loss was greater than “analysts estimates”, it was within the “stress test ” estimates worked out between the rating agencies and NYS insurance commissioner’s office. He also spoke about the question of whether CDS constituted insurance, and spoke of the differential treatment which perhaps should be given to CDS which actually hedge a real position (such as a bond) and CDS which are purely
    options on a given event.

  • Anonymous says:
    May 12, 2008 at 3:37 pm

    One interesting comment was the auditors only look at the reserves and losses on an annual basis. They can pretty much say anything they want for awhile…

  • Ginger Yellow says:
    May 12, 2008 at 4:24 pm

    Speaking of stress tests, I noticed something a bit odd in the 10-Q. I may be misreading it (I only skim-read it), but it seemed to say that their base case loss estimates for subprime portfolios were 16%-20%, while the stress case was 18%-22%. That doesn’t seem like much of a stress to me, and is far below ABX-implied losses. Even if you don’t think the ABX is a realistic or applicable base case, surely it should be covered by your stress test.

  • Richard Kline says:
    May 13, 2008 at 5:46 pm

    “Attention gettin . . . . .” Yessir, losing both legs at the hip without subsequent cauterization does have an impact, especially after already having one’s right arm blown off. The modo/duolines are so dead it would take the Monty Python team to do their justice to their final undulations.

    The newspapers and the markets generally are in the ‘blood oxygen isn’t getting to the brain’ stage. Oils drops from $126 to $124 and we’re told it’s cause for a market rally. A monoline reports $3.6B in swap losses, and someone says, “It’s all priced in now, Mama.” *yeesh*

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