MBIA, Ambac: Short Interest in Bond Insurers

According to our data, the borrow in MBIA (MBI) remains notably high. In early July last year, the company's %Market Cap on Loan (%MCOL) rose from 15% to 30% in a month (please see graph below). Utilization stands at 45%, so there is still some supply.

This is interesting, because MBIA insured structured credit products during the housing boom, and the FT reported on January 9th that 'bond insurers are in trouble,' with Ambac (ABK) named as another bond insurer mired in uncertainty. MBIA has 11.28 Days to Cover.

The borrow in MBIA rose again on October 17th, from 30%, to 58% today. There was an inverse correlation with the fall in share price; from $68 on October 17th to $35 a fortnight later, so a very profitable trade was made by those who went in at the right time.

Like MBIA, Ambac saw its %MCOL rise in the summer, although the borrow was already high at 20%. Ambac's %MCOL rose from 20% on October 17th to 40% a fortnight later, with the share price falling from $63 to $27 in the same timeframe. Those who did increase their short positions would have made a very profitable trade. The %MCOL now stands at 45%, with the share price dropping down to $20, so it will be interesting to see when short sellers will close their positions. Utilisation is at 60% today, so it is harder to borrow this stock compared to MBIA. There are 16.55 Days to Cover.

The FT related both stocks to Warren Buffett's Berkshire Hathaway (BRK.A), who have also gone in to the industry. The borrow in BRK has risen steadily since May, but the amount, from 0.13% to 0.3%, is negligible, and BRK's share price has risen from $110 in mid-August to $150 in mid-December and now stands at $130.

Disclosure: none

Comments

[helplessobserver]

These shorts had better look out. MBIA and the other bond insurers are not going out of business. They can lose in two ways. First is a financial collapse that will occur if the insurers are left to fail. In the the disarray I wish them luck finding their counter parties to collect their profits. Second, once the market sees the stocks won't collapse there will be a panic to cover the positions, once again a loser for the shorts.
These positions are like playing catch with a bottle of nitroglycerine.