MBIA: What Are Short-Sellers Missing?

Nov. 7.08 | About: MBIA Inc. (MBI)

MBIA (NYSE:MBI) announced a widening loss in Q3, which grew to $805m or $348/share, a loss that grew from $36.6m last year. The results were worse than expected, and triggered a 22% decline in the share price on Wednesday. The left-hand graph below documents the percentage of MBI's shares outstanding on loan (%SOOL) to short investors. It is clear to see that short sellers have not picked up on this fall, and dramatically decreased their positions in the stock, down from 23% in mid-September to 11.5% now. On the long side of the market and as you can see from this right-hand graph, which documents MBI's Lendable Quantity, it is clear to see that long-only managers are also leaving the market.

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MBIA 

The markets were down heavily last night, and using our DESLI data, we can see there has been a stabilizing of inventory leaving the market - hovering in all global markets between 85% and 90% - reflecting the fact that between 10% and 15% of stocks available to loan have fallen since September 1. This appears to be flattening out now, and we can expect to see investors re-joining lending programs as the markets stabilize around short selling and stock lending. It is also worth noting that the U.S. is the biggest contribution in short interest, at 140 from the original 100 since September 1; a much bigger number than in Europe and Asia. Moreover, in Asia, the European loan index is actually below 100.

The following charts are of the DESLI Global Index (left) and DESLI Europe Index. The blue line documents the Loan Index and the orange, inventory.

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DESLI 2

Disclosure: None