Troubled bond insurer fights back
MBIA is fighting back.
Under attack from critics who describe it as effectively insolvent, MBIA, a big and troubled bond insurer in the United States, presented a spirited defense in a four-hour conference call Thursday with investors and analysts. Company executives did not allow the participants to ask questions directly, accepting only questions submitted in advance.
The unusual approach seemed to work. Shares of the company and the stock market as a whole moved higher after the executives started making their case just after 11 a.m. New York time.
The Standard Poors 500-stock index ended the day up 1.68 percent. MBIA climbed 11 percent, to $15.50.
The company rejected most of the arguments made by investors like William Ackman, a hedge fund manager who has bet against MBIAs stock. Ackman released detailed data on the companys insurance contracts Wednesday and warned it might face crippling losses linked to bad mortgage investments.
During the call, MBIA executives acknowledged that the company and its competitors had made mistakes in evaluating mortgage securities they guaranteed against losses for banks and other investors. MBIA also announced a $2.3 billion loss for the fourth quarter, its biggest ever, as it wrote down the value of some guarantees by $3.5 billion.
The executives said they were nonetheless confident that MBIA would keep its triple-A credit rating and weather the current turmoil. The company, which closed a $500 million investment from a private equity firm Wednesday, also said it was considering raising more capital.
“Our house was built on a solid foundation on a sound strategy,” said Gary Dunton, MBIAs chairman, who sprinkled his remarks with witticisms and occasional gibes at his critics.
Addressing the 80 percent drop in the companys stock price over the last 12 months, Dunton said, “Our only conclusion is that the market has overreacted to the real and obvious problems in our business.”
The debate over MBIAs future is far from over. Standard Poors said Thursday that it might downgrade the companys debt rating if MBIA were not able to raise new capital quickly.
The ratings agency downgraded a smaller bond guarantor, Financial Guaranty Insurance, to double-A from triple-A.
The New York State insurance superintendent, Eric Dinallo, is trying to persuade some of the biggest banks in the United States to invest in or lend money to MBIA.
New Yorks governor, Eliot Spitzer, said the state was making progress in the effort, Reuters reported.
A big issue facing MBIA is the fate of a Bermuda-based company, Channel Reinsurance, in which it owns a 17 percent stake. MBIA is counting on Channel Re to cover losses on $43 billion of securities. MBIA has written down its stake in Channel to zero to account for the declining value of its insurance contracts, and Moodys Investors Service is considering downgrading the reinsurers triple-A rating.
If Channel Re is unable to raise more capital and loses its top rating, MBIA might be forced to take back some or all of the insurance liability it has insured with the firm, said Donald Light, a senior analyst at Celent, a financial services research and consulting firm in Boston.
“The question is who has $100 million to $3 billion to put in those kinds of places,” Light said of Channel and other reinsurers.
