Investors Are Overlooking MBIA's Value - Barron's

Leading bond insurer MBIA (MBI) has been unfairly hurt by industry fallout, Barron's says. Shares fell 50% last week alone, completing a drop from $76 last year to $8.55 currently. Fearful investors sank MBIA note values issued recently and credit default swaps on MBIA debt have soared, indicating 70%+ bets that it will default on debt within five years. Investors don't think MBIA's $8 billion capital base can cover potential losses on its $652B portfolio, especially after Fitch downgraded rival Ambac's (ABK) credit rating from AAA to AA on Friday.

But Barron's says the declines are excessive: MBIA, unlike Ambac, has already raised the capital that ratings agencies required to shore up capital. MBIA could even reap from Ambac's fall. Potential losses are overstated because bond insurers only guarantee loan payments and interest over the life of the debt, so any losses over the 20, 30 and even 50-year lifetime of loans will be relatively small. Major investor Warburg-Pincus foresees just $250 million in potential losses. This pales next to MBIA's annual revenues of $1.3-$1.4B. Other big, recent investors include Third Avenue Fund and Davis Selected Advisers, but Warburg says it would buy MBIA outright, based on its asset values alone. If all else fails, Barron's says MBIA's liquidation value is $30-$40/share.

Comments

[Maui Investor:]

When I saw MBI and ABK bounce a little into Friday's close, I wondered what the reason was. It appears someone may have leaked that this article was coming out over the weekend.

While I do think the selling appears to be overdone, I think that bond insurance in 2008 is the same as portfolio insurance was in 1987. I also think that the way the stock market is pricing ABK and MBI is an indication of its faith in the value of the bond insurance they provide.

2008 Jan 22 12:29 AM

[jcrash:]

Barron's is garbage.

2008 Feb 08 10:55 PM

[oldlures1:]

Glad to see something positive for a change regarding MBIA and/or ABK. Thanks!
"jcrash" doesn't seem to hold much regard for Barron's. I haven't followed them, so I don't have a feeling for their accuracy or accumen, but I sure hope they're right on that $30-$40/share "liquidation" value. Admittedly, I was thinking in the $25-$30/range. Regardless, they don't deserve to be where they're at at the moment, that's for sure!

2008 Jun 23 06:43 PM