Bruce Berkowitz In Good Company As An Owner Of MBIA

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 |  About: MBIA Inc. (MBI), Includes: AGO
by: Tom Armistead

Bruce Berkowitz' Fairholme Funds and Fairholme Capital Management together own 24.8% of MBIA (NYSE:MBI), according to the most recent SC 13G/A, filed 9/12/2011. While it's comforting to have a savvy, well known investor as a fellow shareholder, in this case it's helpful to look at who else has major positions.

Concentrated Ownership Looking up the owners on MSN Money, there has been a steady reduction in the number of positions, with over 90% of the shares held by fewer than 20 institutions and individuals. Because of the company's well publicized difficulties following the financial crisis, all the weak hands have been driven off, and the remaining shareholders are well-informed, patient, and willing to accept risk.

A Sampling of Owners

  • Warburg Pincus - 23.1%
  • Marathon Asset Management - 5.1%
  • Dimensional Fund Advisors - 4.9%
  • TCW Asset Management - 2.7%
  • Blackrock Financial Management - 3.9%
  • Fine Capital Partners - 3.6%
  • Kahn Brothers Group - 1.5%

Marathon, Blackrock and TCW were pre-qualified for PPIP, the government program intended to partner with private equity in restoring the market for legacy MBS. Given their stature and expertise in fixed income, their presence as shareholders signifies that MBIA's liability arising from insuring MBS is manageable.

Kahn Brothers invests primarily in undervalued and often unpopular securities that present both a margin of safety and attractive prospects for capital appreciation. The Chairman, Irving Kahn, was a teaching assistant to Benjamin Graham at Columbia.

Dimensional Fund Advisors prides itself on its academic affiliations, listing Myron Sholes, Eugene Fama, Kenneth French, Robert Merton and Roger Ibbotson, among others.

For Fine Capital Partners I couldn't locate a website. However, I looked over the most recent 13F-HR and what I see is a value investor taking relatively concentrated positions, holding Assured Guaranty (NYSE:AGO) as well as MBI. It holds a stake in Pzena Investment Management, and a sufficient number of financials (none of the big five banks) to denote comfort and presumably expertise in the sector.

Warburg Pincus - excerpts from the firm's profile:

At Warburg Pincus, private equity investing is our only business. Established more than 40 years ago, Warburg Pincus has invested more than $35 billion in over 650 companies in more than 30 countries around the world. The firm’s strategy combines deep industry expertise and local market experience; the flexibility to support all stages of company development; a long-term investment horizon; and fully aligned interests among our portfolio company management, limited partners and general partners. Partnering with superior management teams, Warburg Pincus helps companies formulate strategy, conceptualize and implement suitable financing structures and recruit talented executives. We take a long-term perspective and invest in businesses at all stages of development, from founding start-ups and fostering growth in developing companies to leading complex recapitalizations or large-scale buy-outs of more mature businesses.

Warburg Pincus invested in recapitalizing MBIA and holds two board seats. I see smart money, very patient, and working closely with management.

Insiders Are Buying

  • CEO Jay Brown - 9/2/2011 - 100,000 shares @ $7.60
  • CFO Chuck Chaplin - 5/27/2011 - 25,000 shares @ $9.01

Brown owns over 4 million shares, or 2.2% of shares outstanding.

Short Interest There are 26.9 million shares sold short, representing 13.6% of shares outstanding, and 10.2 days to cover. Whitney Tilson has been the most notable of recent short sellers on this situation, but the last information I saw was that he has covered.

My long-term view on MBI is bullish, while in the short term the stock is very volatile and trades with the market, based on beta, and on the news as it breaks. I personally would not entertain a short position here, because the shares are concentrated in strong hands and covering could prove costly in the event of positive news on the litigation or remediation front.

Disclosure: I am long MBI, AGO.