beachtango

MBIA Management's a Safe Short Bet

Why can't you ever say anything positive about ABK or MBI? Why is everything you and Tillson say on seeking alpha so biased and transparently malicious? At the very least state both sides of argument...
The embattled Armonk, N.Y.-based bond insurance outfit, which has raised some $2.6 billion in capital from private and public investors to appease Standard & Poor's and Moody's Investors Service, believes that it can snatch up new insurance and reinsurance policies from smaller firms that might be facing runoff -- a process in which they collect fees on policies they already insure, but pursue no new business -- or are otherwise hampered, CEO Jay Brown tells TheStreet.com.

"We have a clear opportunity. A number of companies look like they are going to go into runoff," Brown notes.

For his part, Brown has been scrambling since returning to MBIA as CEO last month to breathe new life into the world's largest bond insurance company. MBIA, the largest financial guarantor, and its next largest rival Ambac Financial(ABK - Cramer's Take - Stockpickr) have been swept up in perhaps the most harrowing financial turmoil the debt insurance sector has experienced in three decades. The guarantors have also been the target of short-selling hedge fund manager Bill Ackman, who has lobbed frequent verbal grenades at the companies through the press and his writings.

"Look at all the companies affected the most and you look at how much capacity the firms that have underwritten insurance. They don't have enough capacity," Brown says. Without being explicit, Brown said a number of the smaller guarantors may be susceptible to falling into runoff.

Still, restoring confidence among shareholders continues to be an uphill battle.

MBIA has so far underwritten "very little new business," according to a recent filing with the Securities and Exchange Commission. But Brown is optimistic that the pall surrounding the company will dissipate in the wake of S&P and Moody's affirming MBIA's pristine triple-A rating last month. The CEO also noted that MBIA wrapped up a public finance insurance deal for a $377 million toll road project. But the insurer will likely face further writedowns next quarter in areas tied to mortgage-tainted securities, including home equity mortgages that have dropped recently.

As a part of its restructuring efforts, MBIA announced late Thursday that it was cutting 48 positions, as it retools its structured finance insurance business. Brown's larger restructuring plan involves splitting up MBIA's more risky structured finance business from its safer, more conservative job of insuring debt for municipalities. The CEO has said the split may take up to five years to complete.

Some of the new staffers MBIA plans to hire in the near term will be part of a strategic financial group that will help the firm achieve its goal of underwriting conservative insurance policies. MBIA plans to steer clear of funky structured debt and staffers in its strategy group will help it figure out ways separate out its structured book of business.

Brown has said publicly that splitting up the structured book from the municipal business should help it secure future funding at attractive rates and help restore the guarantor's image to potential clients. At this point, MBIA is trading at a more than 80% discount to its share price a year ago.

MBIA has been adamant about its view that it has sufficient capital -- about $17 billion -- to pay claims should a deteriorating economy result in debt defaults.

NEW YORK, March 11 (Reuters) - U.S. bond insurers' losses are likely much lower than what the troubled firms have reported when marking their holdings to market prices, Moody's Investors Service said on Tuesday.

Shares of bond insurers like MBIA Inc (MBI.N: Quote, Profile, Research) and Ambac Financial Group (ABK.N: Quote, Profile, Research), which guarantee payments on roughly $2.4 trillion of debt securities, have fallen precipitously on worries about billions of dollars of claims on mortgage-related bonds they may have to pay out.

In the last six months, Ambac shares have fallen 79.4 percent and MBIA shares have slid 81 percent.

But Moody's approach to rating the guarantors involves trying to determine the "real economic loss" the firms will sustain, as opposed to mark-to-market losses, Moody's analyst Ted Collins said in response to a question on a conference call.

Such loss estimates are "lower than the mark to market that's being recorded," Collins said.

Accounting firms are putting increasing pressure on financial firms to mark their holdings to observable market prices. That has frustrated some firms, which argue that volatile short-term prices can exaggerate actual losses.

If the losses the bond insurers face turn out to be less than expected, that could provide some relief for investors.

Insurers like Ambac have had to write down the value of billions of dollars of credit derivatives, but these write-downs may not necessarily translate into actual losses.

As a result, some players are still confident the firms have enough capital and available funds to pay expected claims.

Tillson, and Middleton....talk constuctively...for a change....