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MBIA Inc. (NYSE:MBI)

Q2 2009 Earnings Call

August 6, 2009 8:00 am ET

Executives

Greg Diamond – Director Investor Relations

Joseph W. Brown Jr. – Chief Executive Officer

Edward Chaplin - President, Chief Financial Officer, Chief Administration Officer

Clifford Corso – Chief Investment Officer

Anthony McKiernan – Managing Director, Head of Structured Finance Insured Portfolio Management

Analysts

[Daniel Kim] – JP Morgan

Darin Arita – Deutsche Bank Securities

Phillip Gutfleish – Elm Ridge Capital Management

Arun Kumar – JP Morgan

Amanda Lynam – Goldman Sachs

Scott Frost – HSBC

Alistair Lumsden – CQS

[Mathew Cohen - Third Point]

Operator

Welcome to the MBIA Inc. second quarter 2009 earnings conference call. (Operator Instructions) I would now like to turn the call over to Greg Diamond, Director Investor Relations.

Greg Diamond

We're going to follow the same format as last quarter's call. Chuck will provide some brief comments and then we will start the question and answer question. We have posted several items on our Web site including the Form 10-Q for the quarter. We've also posted remodeled quarterly operating supplements for both the first and second quarters of 2009. And the information for accessing the recorded replay of today's call is in our financial results press release, which is also available on our Web site.

Our company's definitive disclosures are incorporated in our SEC filings. The purpose of today's call is to discuss some of the points raised in our most recent 10-Q to facilitate a greater understanding for investors. The 10-Q also contains information that will not be addressed on today's call. Please note that anything we say on this call is qualified by the fuller information provided in the 10-Q in our SEC filings. You should read our Form 10-Q as it contains our most comprehensive disclosures as of the end of the second quarter about the company and our financial and operating performance.

For the Q&A session of today's call we have Jay Brown CEO, and Chuck Chaplin, President, CFO and Chief Administrative Officer.

Now for our Safe Harbor disclosure statement, our remarks on this conference call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in our forward-looking statements. Risk factors are detailed in our 10-K, which is available on our Web site at www.mbia.com. The company undertakes no obligation to revise or update any forward-looking statements that reflect changes in events or expectations. In addition, the definitions of the non-GAAP terms that are included in our remarks today may also be found on our Web site.

Before we begin the Q&A session, Chuck Chaplin will provide a few introductory comments.

Edward Chaplin

Last week the latest GDP numbers were reported for the first quarter and second quarter of 2009. As the economy continues to contract, the last two quarters have been part of the longest and deepest recession that we have seen since GDP records have been kept starting in 1947.

While the rate of declines slowed in the second quarter, the economy in the first six months of this year continued to modestly underperform our expectations and affect our loss assumptions. Nonetheless even as we've increased our expectations of payments to investors, those losses still remain within our means.

All things considered so far in 2009 we've made good progress in reducing risk in our businesses, remediating troubled credit and pursuing recoveries of losses based on misrepresentations. This continues to be a year in which we focus on maintaining balance sheet strength in the face of an adverse credit environment.

On a consolidated basis the company has more than adequate assets to fund all of its liabilities and expected payments on contingent liabilities. But since we operate through multiple regulated entities let me comment on the major ones.

National Public Finance Guarantee Corp., our newly formed domestic municipal finance company, has a solid balance sheet with $1.7 billion of statutory capital and total claims paying resources of $5.5 billion. Its cash flow is being used to grow its investment portfolio and surplus.

MBIA Insurance Corp., our structured finance and international bond insurer, held $1.2 billion in cash and short-term assets as of June 30, 2009, and had $4.2 billion in statutory capital and $7.8 billion in total claims paying resources.

As we expected, MBIA Insurance Corp. is experiencing negative operating cash flows in 2009 and thus holds a substantial portion of its assets in near cash investments. We believe that it has sufficient resources to carry all of its obligations and fund its expected contingent liabilities and maintain a cushion.

Our holding company compromises the corporate operations and the Asset Liabilities Management business. In our corporate operations we had about $378 million of liquid assets at June 30, enough to cover all of our expected cash outflows well into 2011, including scheduled debt maturities. In the second quarter we used about $10 million at the holding company level to purchase $101 million of preferred stock of MBIA Insurance Corp.

In the ALM portfolio we had cash and short-term investments of $1.3 billion at June 30. Total liabilities were $8.8 billion down from $23.5 billion at June 30 last year. The book now had positive operating cash flow beginning in May and we've been successful in repurchasing some of its debt at discount.

The ALM business has a $2 billion obligation to MBIA Insurance Corp., which we expect to be repaid through ALM's positive cash flows and reduced collateral requirements as liabilities in related hedges wind down or are repurchased and as credit market liquidity improves.

It also benefits from a $600 million advance from the corporate operations which can only be repaid after the obligation to MBIA Insurance Corp. is retired. Finally, it has a $1.7 billion asset swap relationship with National, which will wind down as ALM's guaranteed investment contracts mature or are terminated.

Let's turn now from the balance sheet to our operating performance. I'll talk about consolidated results for the six months of 2009 and then make some comments about the second quarter at the segment level. On a consolidated basis we had pre-tax income in the six months of 2009 of nearly $2.5 billion, of which $2 billion was associated with unrealized gains on insured credit derivatives in MBIA Insurance Corp.

We do not believe that these derivative gains reflect fundamental performance of our business just as the unrealized losses we've seen on insured derivatives in other periods did not reflect fundamental underperformance.

About $455 million of our pre-tax income is associated with business operations compared with a $512 million loss on the same basis in 2008. The drivers of this improvement were lower provisions for insured losses, higher realized and unrealized gains on hedging derivatives and lower impairments of invested assets.

Our future performance will depend, in part, on the direction of the global economy because there continues to be great uncertainty about the progress of this recession and the markets to which we are exposed, it is too soon for us to expect a return to any kind of normality in our P&L. And we expect to continue to have the volatility in reported earnings that the mark-to-market on insured credit derivatives brings.

Now to comment on the performance of each business in the second quarter of 2009, National Public Finance performed in line with expectations in the second quarter with $146 million in pre-tax income. This is pretty much a run rate level of earnings for National. Some one-time expenses associated with the organization of the company affected the quarter, but they were basically offset by realized investment gains. Loss and loss adjustment expense was consistent with our historical average of roughly 5% of premiums.

National didn't write any material new business in the quarter; however, once we prevail in the transformation related litigation we expect that both our rating and our new business outlooks will improve.

At MIBIA Insurance Corp. once again we have increased our payment expectations for our insured second lien RMBS transactions. We now project that our payments will remain elevated for the rest of this year and then reduce materially by late 2010. This is an extension beyond the expectation we had last quarter.

The trend that we see today in early stage delinquencies, or over the last few months, as shown on page 47 of our operating supplement, is supportive of our projections but clearly there is risk associated with any assumptions that we make about the future performances of these deals.

It's important to note that virtually all of the payments made by MBIA serve to reduce the principal balances of the bonds and ultimately these securitizations with contain only performing loans. Excess spread of those remaining performing mortgages will partially offset our higher payments. I'm expecting net cash flows ultimately to be positive in aggregate commencing sometime in 2011.

You can see this in the graphic in our supplement on page 49. The portion of the bars that are below the zero line represent cash in flows. The net increase in expected payments in this quarter was approximately $393 million.

Our financial assessments for this quarter also reflect our decision to account for an initial assessment of recoveries on ongoing mortgage file reviews on deals with certain seller/servicers. Based upon the loan level forensic analysis of our experts, we believe that a vast number of loans were inappropriately included in some of our insured second lien RMBS transactions.

As I stated, this is just an initial assessment. The analysis is ongoing and the recovery reflected in our financials only reflects the most serious violations of mortgage loan eligibility criteria for loans that we've been able to re-underwrite.

Our loan level forensic review experts have re-underwritten nearly 24,000 loan files from 24 securitizations originated by four seller/servicers and they've found that over 18,000 had serious breaches of risks and warranties. We are processing these loans under the put back right associated with our policies and we've commenced legal actions against two of the seller/servicers to compel their performance under these contracts.

To provide some color, our initial assessment of loans eligible for repurchase is primarily composed of loans that either have a credit breach or had both credit and compliance breaches. An example of a credit breach would be a loan that exceeds the debt to income or combined loan to value ratio guidelines for the relevant program. Compliance breaches would be things like missing good faith estimates or Reg Z forms in the files.

The total recovery value reflected on our financial statements is approximately $1.1 billion and a total reduction in our accumulative incurred loss from the combination of the higher payments that I referenced, the recovery, and all other effects was $735 million in the second quarter.

Again, the recovery is based on our contractual rights under the transaction documents. To provide some scale on our efforts to date, the loans that we've re-underwritten over many, many months are only 27% of the delinquent and charged off loans in these securitizations. We are pursuing recoveries on these other loans and additional sums via legal proceedings.

We also intend to aggressively enforce our contractual remedies and as such we're also conducting forensic reviews of mortgage files and securitization of other seller/servicers. However, we have not included any recoveries from these additional claims at this time.

Now, while we're on the subject of credit performance, I'll address our insured credit derivatives. You can't see the credit performance directly in our GAAP numbers but you can in the non-GAAP measure ABV and in our statutory books. That's because in those two places we estimate impairments or record loss reserves for those policies just as we do for regular financial guarantee policies. These reserves reflect an expected cash cost of settling claims on these policies as opposed to the policy's fair value which is required by GAAP.

In the quarter, we increased those reserves by approximately $287 million. We have learned again through detailed forensic analysis that some of our insured CDOs are affected by misrepresentations of the characteristics of their collateral, and we have commenced legal actions against one of the arrangers whose deals represent a majority of our incurred loss.

On the GAAP side, instead of expected cash payments you have the mark-to-market. And once again this quarter it has a significant impact on MBIA Corps income statement. You'll see in the attribution table that was included in our press release as well as in our operating supplement, that the drivers of the $424 million positive change in our accumulative mark-to-market were lower spreads on collateral in the CDOs.

That positive change is reduced by the impact of the market's perception of MBIA's non-performance risk. All of the columns in our attribution table, except the non-performance risk column, can be thought of as having been calculated excluding credit risks, and then the non-performance risk component converts that raw result to a fair value, which is shown in the far right column.

So even if there's no change in MBIA's credit to default swap spread, which is essentially what happened this quarter, there will always be an offset to the other columns in this column. If the other components of our fair value have a net positive value, as they do this quarter, the non-performance risk will have a negative value and visa versa.

Turning now to the Investment Management Services businesses, the ALM business had pre-tax income in the second quarter of $96 million of which $95 million came from gains on the extinguishment of debt. Other than that unrealized gains on swaps and foreign exchange of $116 million more than offset asset impairments of $107 million. We continue to work on reducing the underlying negative spread on this book as it continues to wind down.

Our third party asset management business continues to post solid investment performance, and as a result of that new mandates in fixed income as well as in our short-term pool programs. Year-to-date we've added 23 new portfolios in third party assets under management in total grew by about $3.8 billion since year-end.

The contribution to pre-tax earnings from the third party asset management business and our conduit operations were $1 million and $18 million respectfully in the quarter, repurchases of conduit debt at discounts make up most of its contribution.

To sum up the quarterly financial results then, we had $1.5 billion of pre-tax income, about half of that came from adjustments to loss reserves for recoveries and approximately 30% came from favorable mark-to-market movement in MBIA Insurance Corp. The balance came from the underlying mechanics of our businesses.

For management purposes, we also track our adjusted book value or ABV. ABV is a non-GAAP concept that removes the effects of unrealized gains and losses. ABV does however include the impacts of any expected cash losses on insured credit derivatives, as well as invested assets.

At June 30, ABV was $40.01 flat against year-end 2008 ABV of $40.06. Adverse insured credit performance in MBIA Insurance Corp reduced ABV by about a $1.14 per share. This was nearly offset by other sources of earnings, including the impact of debt buybacks at $0.39 per share.

With that, we'd like to open the floor to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of [Daniel Kim] – JP Morgan.

[Daniel Kim] – JP Morgan

I guess my question is about the $1.1 million refund. Who are the counterparties? The estimated refund that recovery.

Edward Chaplin

We have made public some of the names of the seller/servicers that we do business with. Countrywide is the largest of the seller/servicers with whom we have put backs. We have also disclosed that ResCap is one of the players. The two of them account for the lion's share of the put back rights that we have at this time.

[Daniel Kim] – JP Morgan

Is this estimate based on your conversation with them or just based on your assumptions on the performance of their collaterals?

Edward Chaplin

No, it's based on an evaluation of the mortgage loan files themselves related to the underwriting and compliance guidelines that the seller/servicers [inaudible] to us at the time of the securitization.

[Daniel Kim] – JP Morgan

Am I correct in understanding that to date you haven't actually received any recoveries yet?

Edward Chaplin

We have received some recoveries, yes.

[Daniel Kim] – JP Morgan

How much would that be?

Edward Chaplin

The recoveries that we've received is not material at this point relative to the amount of the recovery that we're taking into the income statement this quarter.

[Daniel Kim] – JP Morgan

In the CMBS synthetic CDO obligations, are they all pay as you go?

Edward Chaplin

Our synthetic CDO transactions including the CMBS pulls all have the characteristic where, as credit events occur and are reported to us, we count those credit events against a deductible. And then when the credit events get to be in excess of the deductible or if they become in excess of the deductible, we would pay on each then subsequent credit event.

[Daniel Kim] – JP Morgan

So are they all like that or only some of them?

Edward Chaplin

I'd say the lion's share have that characteristic, yes.

[Daniel Kim] – JP Morgan

And of the about $35 billion of synthetic CMBS you mentioned, what was the average attachment point on those deals?

Edward Chaplin

In our disclosure, we do provide some information on that and I believe what we show is that the range of attachment points is 5% to about 80%.

Unidentified Corporate Participant

Depends on the underlying collateral attachment point, so for lower investment grade collateral, you'll have much higher attachment points, 30% to 80%. For triple A type collateral underlying, you'll have your high single-digit type collateral.

Unidentified Corporate Participant

To follow up on Chuck's point on the payment of our synthetic CDO portfolio, portion is as Chuck described with a deductible base, another portion is based on a timely interest and ultimate principal concept, where principal is well out in the 40 to 50 year category and that's the majority of our multi-sector CDO portfolio that contains mortgage-backed collateral.

[Daniel Kim] – JP Morgan

Obviously, [inaudible] fall between the assets and liabilities in the asset management business, ALM business, how do you plan on covering the shortfall going forward?

Edward Chaplin

Yes, the liabilities are about $8.8 billion at June 30 the value of the assets is about $8.1 billion at book. There is unrealized loss associated with some of the assets. Our expectation is that the difference between that $8.1 billion and the $8.8 billion will be closed over time, in part by repurchases of some of the debt of the asset liability management portfolio at discounts. And you if look at what we've done in this quarter and prior quarters, we have been relatively active in that regard.

Operator

Our next question comes from Darin Arita – Deutsche Bank

Darin Arita – Deutsche Bank Securities

Looking at that $1.1 billion recovery, I guess where did the 24,000 second lien mortgage loans that have been reviewed thus far, were those chosen in any particular order?

Edward Chaplin

They are almost all loans that have been charged off or are delinquent, so we would not say that it's a statistically significant sample of the entire population of roughly 500,000.

Darin Arita – Deutsche Bank Securities

I guess I was thinking there seems to be close to 100,000 defaulted second lien mortgages, so within that pool you've reviewed about 24,000 thus far, and so within that pool there wasn't a particular order those were chosen?

Unidentified Corporate Participant

These were done over the past 18-month period. The initial ones that we requested were the ones that were delinquent or defaulted early in the process. We have pulled subsequent loans where the seller/servicers are still providing individual files. We do have situations where the seller services are no longer providing files, which is one of the reasons there's the major gap between the 24,000 files we've had the ability to review so far and the approximately 100,000 files that are either delinquent or defaulted.

Darin Arita – Deutsche Bank Securities

And was there a particular pattern, in terms of, as you progressed with the review the percentage that breached the representations and warranties?

Unidentified Corporate Participant

It's a good question. One of the things that we are looking for is whether there would be a difference between the first pool of loans we pulled and the subsequent pool. So far, all of the loans have not shown any significant difference between when they went delinquent or when they defaulted. Basically, each and every group of files we've looked at has exhibited the same patterns.

There is a difference by seller/servicer, in terms of the quality of the loans against their representations, but for the two largest seller/servicers that Chuck mentioned earlier, in both cases a huge percentage well over 80% of the loans we've looked at do not meet the representations and warranties that they included in their individual securitizations with us.

Darin Arita – Deutsche Bank Securities

And to what extent can a similar loss mitigation approach be used towards the multi-sector CDOs?

Unidentified Corporate Participant

It can be used in some of the multi-sector CDOs. We have, in fact done, as Chuck mentioned, forensic analysis on a number of the transactions. We have found both individual securitizations where we believe there's misrepresentations you've seen that we filed a lawsuit against one of the arrangers of those CDOs. We've also looked at a number of other transactions where we didn't find evidence of any misrepresentations and have chosen, obviously in those cases, not to pursue any action against the arrangers.

Darin Arita – Deutsche Bank Securities

Can we get a little more color on the nine insured credit derivative transactions that matured or were terminated in the quarter, in terms of what sorts of transactions were those?

Unidentified Corporate Participant

The details would cover two different sectors. They're all mortgage related or multi-sector CDOs. A couple of them were terminated at the request of the issuer and a few were terminated for violation of the terms of the contracts and a couple of them just matured. So it's kind of a range across there. If you look at our detail we provide on the CDOs, you can see where the reductions occurred. Most of the significant reduction would be because of terminations.

Darin Arita – Deutsche Bank Securities

Were there any reserves left against those that were terminated?

Unidentified Corporate Participant

No.

Operator

Our next question comes from Phillip Gutfleish – Elm Ridge Capital Management.

Phillip Gutfleish – Elm Ridge Capital Management

On page 49, Chuck, can you explain note 4 at the bottom? I'm not sure I'm understanding that. Are you expecting to pay out another $1.5 billion in just the second half or is that the entire year because it doesn't really jive with the bar chart? And the second question relates to the cash flow for MBIA Corp. and, if you could explain what the $273 million in other was and I think that's on page 37.

Edward Chaplin

On page 49, what you're seeing there is a bar that represents a full year for every year, except 2009, so the bar for 2009 is really the second half. It does reflect the comments that I made earlier that we're now expecting that the elevated level of payments that we've been making on the insured RMBS transaction continues basically for the balance of the year.

Phillip Gutfleish – Elm Ridge Capital Management

So more or less at the levels that you paid out in the first couple of quarters, right, because I think this last quarter was in the $700 million range, right?

Edward Chaplin

Yes, pretty much. There is a shift in that the projection for the second liens is actually going down in the second half, but we are beginning to pay on some of the multi-sector CDOs in the second half of this year. And the other question was what are the other outflows?

Phillip Gutfleish – Elm Ridge Capital Management

No, it's an inflow, actually. On page 37, you've got $273 million inflow.

Edward Chaplin

Oh, at the top.

Phillip Gutfleish – Elm Ridge Capital Management

Yes.

Edward Chaplin

Let me just find the 237. Looking at the second quarter?

Phillip Gutfleish – Elm Ridge Capital Management

Yes.

Edward Chaplin

The 273 is going to include – there are a number of categories there. I'd have to follow up with you offline, but there are inter-company settlements and things like that within that category taxes, including taxes under our tax sharing agreement. But I can provide you more detail on it. I don't have it right in front of me.

Operator

Our next question comes from Arun Kumar – JP Morgan.

Brian Gibson in for Arun Kumar – JP Morgan

This is Brian Gibson in for Arun. Most of our questions have been answered, but just one clarification on the 1.1, under recovery. Just wondering if that's a gross number or if there has been any type of allowance booked against that recovery any either previous recoveries that you guys have marked?

Edward Chaplin

The way to think about this is our expected recoveries on these transactions will be well in excess of the $1.1 billion recovery that we have booked in the second quarter. Again, what we did here was to take recoveries only for those files that have actually been reviewed in which there are clear violations of reps and warranties.

We have only reviewed 27% of the files that we have paid or expect to pay claims on, and given the proportion of ineligibility that we observed in this group, we expect that it will be very substantial contractual put back rights in the remainder in the 73% that we not yet reviewed. So if you want to think about is the 1.1 that we're taking does it reflect a discount of any kind. The answer is yes, it reflects an enormous discount relative to what we think the ultimate contractual put back right will be.

Brian Gibson in for Arun Kumar – JP Morgan

Would you care to quantify that at all?

Edward Chaplin

No, because of the fact we really are only taking from an accounting perspective those cases where we already reviewed the files so, as I said, we don't have a statistically significant sample. So while we have our expectations about what we're going to find when we go through those other files we don't yet know.

Operator

Our next question comes from Amanda Lynam – Goldman Sachs.

[Donna Halberstadt] in for Amanda Lynam – Goldman Sachs

It's actually [Donna Halberstadt]. I had another question on that $1.1 billion and I understand that you've taken only from an accounting perspective those cases where you've reviewed the files, but after you review the files there's obviously a process there and you said you started the legal process against two sellers.

Can you just give us more color on – do you expect to have to litigate for almost every penny of that expected recovery and how long does that process take and how confident are you that that amount will actually get in the door. So what's the process between reviewing the file and actually affecting the recovery?

Unidentified Corporate Participant

There's two types of processes. In those cases where were not in litigation, the files are actually – the individual loans are put back. There's a 90-day period under which they can either replace the loans, substitute cash or deny the individual put backs. The end of that period, if they've chosen not to respond, then we have to make an evaluation on whether we should peruse any litigation.

In the case of both RFC and in the case of Countrywide that decision was made last year because all of the initial files were essentially rejected after the 90-day period and that was the decision process in those two cases.

In terms of litigation, the litigation is going to be extended. It is not something that will get resolved over a short time period. In our estimates, we have estimated that it will take at least three years to achieve those recoveries, and that's included in terms of how we've estimated the impact of the recoveries.

We have basically estimated a discounted value based on that three year time horizon and that's both reflected in our estimates of incurred loss. It also shows up in terms of how Chuck has laid out the expected cash flows that were mentioned earlier in terms of when recoveries might occur.

[Donna Halberstadt] in for Amanda Lynam – Goldman Sachs

Then just one follow up, I think you said with respect to RFC and Countrywide that the bulk of the 1.1 related to their files, with respect to that other 73%. What percent of that do you think will end up in litigation versus going through the put back process?

Edward Chaplin

The vast majority of all of our second liens, there's 24 deals involved. The vast majority are in fact from Countrywide and RFC. So it's easily 60%, 70% of the remaining loans that have to be examined will come from those two individual insurers.

Operator

Our next question comes from Scott Frost – HSBC

Scott Frost – HSBC

I just want to, again, go over the $1.1 billion here. The $1.1 billion now is that, and I came late so you may have gone over this, $1.1 billion is that the balance sheet transaction or did the 735 go through the P&L this quarter? Is that how that worked?

Edward Chaplin

Yes, it's a contra-expense, if you will.

Scott Frost – HSBC

Okay, and that's the 735, but not the flow in 1.1 the difference would go through balance sheet, is that how it works?

Edward Chaplin

No, the 735 is the net of the $1.1 billion recovery and the increase in expected debt payments.

Scott Frost – HSBC

Okay, and just to reiterate there is a valuation allowance against your claim receivable, but you're not going to disclose that at present, is that right?

Edward Chaplin

The claim receivable is estimated to be less than the full amount of our claim.

Scott Frost – HSBC

And, again, the time table is three years to get recovery, is that what you expect? And you've used a discounted value to get the 1.1. Could you tell us what the discount rate is?

Edward Chaplin

About 1.6% or 1.7%, it's a risk free rate for GAAP. For statutory it will be a different number.

Scott Frost – HSBC

So that increases a higher discount rate would lower the present value, okay. And how much is due from – can you give us just an idea of how much is really due from ResCap? That seems to be – I would think that would be the one with the most sort of risk that you might not realize the return.

Unidentified Corporate Participant

We don't provide any breakdown between the individual issuers of the securities.

Operator

Our next question comes from Alistair Lumsden – CQS

Alistair Lumsden – CQS

Actually my questions have been covered, so I'll just ask one supplementary on this $1.1 billion. Is there any precedent other than Ambac to actually take a future claim that it's uncertain actually through your P&L.? Has this been done by any other companies or is it just monoline.

Unidentified Corporate Participant

All of the other monolines over the past couple years have established exactly the same types of reserves based on their own forensic analysis. Up until this point we were the only company in our industry that hadn't done so.

Alistair Lumsden – CQS

There's no actual evidence of significant success in these claims.

Unidentified Corporate Participant

I'm sorry, I didn't hear the question.

Alistair Lumsden – CQS

There's no actual evidence of successful on claims being made [inaudible] that you have a small amount of recovery today?

Unidentified Corporate Participant

Actually, that's not true. There has been significant recoveries by some of our competitors with smaller claims because the dollars aren't as large, but we've all used exact same types of firms. We've discussed among ourselves the types of analysis that's been done.

And it would appear the industry across the board is using similar types of analysis at the individual loan file level, even though each individual securitization has different reps and warranties, which have to be matched against the loan files that were from those individuals securitizations. The techniques in the firms that are doing this are approaching it in a very consistent fashion.

Unidentified Corporate Participant

And, of course, the recognition in general of contractual rights in the insurance industry is very well established.

Alistair Lumsden – CQS

Over the three year period, at what stage will you have more clarity as to exactly what this number is going to be and how likely you are to succeed?

Unidentified Corporate Participant

It's not going to happen in the near-term. The litigation in both cases is in a fairly early stage. I would not expect a lot of clarity for the next 18 to 24 months.

Operator

Your final question comes from the line of [Mathew Cohen – Third Point]

Mathew Cohen - Third Point

In the asset liability book, what's the fair value of the assets?

Edward Chaplin

The fair value of the assets are actually included in our sales –

Unidentified Corporate Participant

Yes, it's actually reported in the data

Mathew Cohen - Third Point

I know it was in the presentation last quarter, I just didn't see it in the supplement this morning.

Edward Chaplin

I think it's in the operating supplement, but you have a book value of $8.1 billion and you have about a $2.1 billion difference between that and fair value to the negative because, obviously, spreads have widened. But that's actually been improved since last quarter by about $100 million or $200 million just as spreads have tightened a little bit through the end of the quarter.

Mathew Cohen - Third Point

So fair value is like 6.1 or something?

Edward Chaplin

Yes, that's about right.

Mathew Cohen - Third Point

During the quarter, was there any provisions taken against the CMBS portfolio?

Edward Chaplin

No.

Operator

This concludes the Q&A session. Greg, your closing remarks.

Greg Diamond

Thanks to all of you who joined us for today's call. In addition to Jay Brown and Chuck Chaplin who responded to questions, we also had Cliff Corso our Chief Investment Officer and Anthony McKiernan Head of our Structured Finance Surveillance area. If you have additional questions, I can be reached at 914-765-3190. We also recommend that you visit our website at www.mbia.com for additional information. Thank you for your interest in MBIA. Good day and goodbye.

Operator

This concludes today's MBIA Inc. second quarter 2009 financial results conference call. You may now disconnect.

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Source: MBIA Inc. Q2 2009 Earnings Call Transcript
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