MBIA Reports $2.4 Billion Quarterly Loss

Armonk, N.Y.-based bond insurer MBIA Inc. reported a first-quarter loss of $2.4 billion, compared with net income of $198.6 million during the same period in 2007.

The company said its first-quarter net loss per share was $13.03, compared with net income per share of $1.46 for the period last year.

MBIA said its insured portfolio totaled $668 billion at the quarter's end and continued to generate revenue in the quarter, even though new business production was off from the same period of the prior year.

Total revenue was $711.4 million (before realized and unrealized gains and losses), down 4 percent from $741.7 million in 2007.

Most of the net loss in the quarter, the company said, was the result of a pretax $3.6 billion unrealized loss on insured credit derivatives, which included $800 million of credit impairments.

MBIA said in a statement that "while the size of this mark-to-market adjustment is attention-getting, the company does not believe it is representative of actual expected impairments."

"MBIA continues to be a sound financial institution. We have ample liquidity, our balance sheet is built to withstand credit stress levels many multiples of what we're experiencing now, and our business model is proving that we are adequately capitalized to satisfy any potential claims on our insured portfolio," said Jay Brown, MBIA chairman and chief executive officer. "While our operating results this quarter were clearly disappointing, they are consistent with developments in the credit markets."

During the past nine months the company has reported $4.74 billion in losses primarily from collateralized debt obligations guaranteed through credit default swaps.

Standard & Poor's in reaction today said it recommended selling the company's shares, finding its quarterly loss was wider than the operating loss estimate of $1.80 it had for the company.

S&P's equity research division noted an overall contraction in the company's business activity due to its credit-related woes and said it is widening its 2008 operating loss forecast to $2.46 per share from a $1.80 loss, which assumes MBIA earns operating profits in the third and fourth quarter.

"We remain concerned that [MBIA] may not retain its top-tier financial strength, and we would sell the shares. Our $8 12-month target price assumes the shares trade at 75 percent of the March 31 stated tangible book value, a premium to many peers," the company wrote.

S&P added that it is remaining "circumspect about assigning stable outlooks to insurers even if they have sufficient capital when measured against our projected stress case losses. Accordingly, we maintain negative outlooks to MBIA and Ambac due to their significant exposure to domestic nonprime mortgages and the credit quality of their exposures."

MBIA in its 10K filing with the SEC revealed that it has been the target of several lawsuits that accuse the company of issuing false and misleading statements with respect to its exposure to losses from insuring CDOs and residential mortgage-backed securities, including exposure to so-called "CDO-squared" securities, causing the firm's stock to trade at inflated prices.

The company added that it is the target of subpoenas and informal inquiries from regulators that include the Securities and Exchange Commission and the Massachusetts Secretary of the Commonwealth Securities Division.

MBIA said it was being asked for information on a variety of subjects, including disclosures to underwriters and issuers of certain bonds and its Dec. 10, 2007 announcement of preliminary loss reserve estimates related to its residential mortgage-backed securities exposure.

Also being scrutinized are company disclosures regarding its collateralized debt obligations exposure, its communications with rating agencies, and the methodologies used by rating agencies for determining the credit rating of municipal debt.

The company said it is cooperating in providing material.

A spokesperson for the New York Insurance Department, where the company is domiciled, said the agency is closely involved in monitoring the company, which has had difficulty maintaining its "triple-A" rating, but is not involved with the Massachusetts inquiry.

The Massachusetts probe was announced in January by Secretary of the Commonwealth William F. Galvin, who said then that he had subpoenaed MBIA along with Ambac Financial Group, another municipal bond insurer, to determine if they had informed Massachusetts communities and investors of their "exposure to highly risky securities, such as collateralized debt obligations."

Asked for in the subpoenas was a listing of Massachusetts public issuer bonds issued since January 2006 for which the companies have insured repayment of principal or interest, and all documentation and disclosure associated with those bonds.

"If the credit quality of these companies comes into question, the impact on cities and towns is enormous, raising costs to municipalities and increasing investors' risk.

"This office wants to know when and if MBIA and Ambac disclosed to bond issuers--the cities, towns, districts and other public authorities--and to investors that their financial condition as an insurer was being severely impacted as a result of their involvement with these highly risky securities," Mr. Galvin said in a statement.