Timothy Travis

MBIA's GIC Exposure Could Trigger a Liquidity Crisis

crashof2008 wrote
"This is demonstrably false. If MBI were planning to hold this deeply toxic and radioactive waste to maturity, and pay any and all necessary claims as you so blandly assert, why are they (together with Ambac) so desperate to CANCEL 125 billion dollars worth of them as described just last week in the Financial Times at:"

MBI and ABK are not the desperate ones in this situation. The banks and investment banks that have bought the insurance are the ones that are facing significant additional write downs as a result of the ratings downgrade. Since they are and should be relegated to MTM accounting to keep their Tier 1 capital ratios at acceptable levels, taking these write downs will likely lead to another round of capital raising.

The reason that the insurers might be willing to discuss remediating some of these contracts is quite obvious in that it does not make sense to have your largest customers be extremely unhappy with your product. If they can come to a reasonable compromise with some of the policyholders to help their customers in a way which does not hinder the insurer’s shareholders then these negotiations are quite logical in that if these companies intend to stay in the financial guarantee business, these relationships will be crucial to their future. These discussions would be directly related to the ratings agency downgrades which have no true economic effect on the insurer’s CDS portfolios, but will have significant effects on the policyholder’s positions. Therefore it is clearly in the policyholder’s interests to have these discussions much more than the insurers.

I don't even know if they are really having serious discussions or not and I'm not too concerned about rumors anyways but it does make sense for them to do everything in their power to assist their clients as long as it is fair to shareholders as well. Any future business prospects are up in the air and are not figured into my $20-$30 valuation of MBI but there are quite a few insurers who function quite well with ratings below AAA like AIG for instance. MBI has quite a bit of surplus cash with which to start new well capitalized subsidiaries so that is just a call option on the valuation, but I'd prefer to see an aggressive share buyback and perhaps a recapitalization of the debt structure if possible.

Also you might note that the CEO has bought $1,724,690 of stock in the last month, and much more before that so his interests seem to be very much aligned with shareholders for what that is worth.