MBIA: Credit Where Credit Is Due

Am I the only one who checks book value anymore? Last I saw, MBIA (MBI) had a book value of approximately $29/share. While their balance sheet shows a trend of increasing liabilities, the recent stigmatization of this stock seems unwarranted. Smart investors are already seizing upon the opportunity to buy this undervalued company.

A large portion of MBIA’a liability is long-term debt. Just as a financially healthy household might have a mortgage or auto loan to repay, MBIA has future obligations. In the meantime, they can use their liquid cash to build wealth that will be there when those long term obligations come due.

Market share is another consideration that doesn’t seem to be on the discussion table. MBIA has dominated the bond insurance industry in the past, and still does despite its present difficulties. The major competition is Ambac (ABK), a stock whose reputation and price have taken an even greater beating lately. With Ambac’s fervently publicized new strategies coming off as desperation tactics, MBIA should be looking good in comparison.

The blood is in the streets when it comes to financials, and there may very well be more hard times ahead. It’s not easy to stick with a stock taking such a beating. However, with the federal government pouring funds onto the flames of the mortgage crisis, the smoke will soon start to clear. For now, the vultures (and this Raven) are feasting on the easy pickings.

Disclosure: Author is short May MBI strangles at a few different strike prices, bullishly skewed.

Comments

[Gross Bill:]

Yes, you are, in fact, the only one who checks (fallacious) book value on a company like this. No mention of credit downgrades as recently as 6 days ago, no mention of new competition, no mention of the fact that their business model is, essentially, broken. Do they need to raise more cash...how much will that dilute your easy pickins?

Are there editors at Seeking Alpha?

2008 Apr 10 05:14 AM

[crashof2008:]

They are overleveraged, to the gills. "Book value" is an illusion, it is mark to model NOT mark to market.

2008 Apr 10 10:42 AM

[crashof2008:]

I recommend you learn as much as you can about their subsidiaries, especially their offshore ones. This is where the time bombs are.

2008 Apr 10 10:51 AM

[unwired:]

I don't think this is a bargain at all. As with Bear Stearns, there are plenty of unknowns that could pop up at any time. With financial companies in general these days, the accounting and the numbers are basically worthless...and their true value becomes apparent in times of stress. With the amazing inflation in the dollar by the fed, I think its much wiser to put your money where the increased money is bidding up prices...like resources etc.

2008 Apr 10 11:18 AM

[Nick Gogerty:]

Channel RE + CDS counterparty exposure + $CDO exposure= ??

2008 Apr 13 01:57 PM

[discov:]

Yeah, the editors should nip this article out. It is nutz to think that book value applies to a company with so little visibility. Oh, yeah I also forgot that states are starting to sell muni bonds without insurance...
1. MBIA over leveraged
2. MBIA has new competition
3. MBIA is in a market place where they are being shown to be unnecessary (muni bonds without insurance)
4. MBIA has one rating agency that doesn't lie about their rating (fitch, who downgraded them)

1+2+3+4= dead

have some fun and buy some puts a year out.
Ryan

2008 Apr 16 10:23 PM