The holding company for MBIA Insurance Corporation, MBIA Inc, reported, on January 31, net losses of $1.9 billion for 2007, and $2.3 billion for the quarter. The giant bond insurer's losses included a write down of $3.5 billion across all business operations, $3.1 billion of that in the fourth quarter. The write downs related primarily to marking "financial instruments at fair value and foreign exchange" losses. "The $3.5 billion net loss in 2007 includes a non-cash net loss of $3.7 billion for MBIA's insured credit derivatives portfolio, partially offset by a non-cash $0.2 billion net gain from the Investment Management Services operations' derivatives portfolio."
The company had previously announced a plan to shore up capital with an effort to raise more than $2 billion, of which, according to a January 30 MBIA statement, $1.5 billion is done. MBIA says it issued $1 billion in "surplus notes," and received a $1 billion pledge from Warburg Pincus, which bought 16.1 million shares of MBIA common stock at a share price of $31, totaling $500 million, and committed "to backstop a $500 million rights offering." MBIA has added two Warburg Pincus executives to its board: managing director David Coulter, and managing director Kewsong Lee. MBIA also announced a reduction of its dividend.
MBIA also noted in the January 30 capital announcement that board member Richard Walker, Deutsche Bank's general counsel, has stepped down, "in order to avoid any possible appearance of a potential conflict of interest in light of the ongoing discussions among the New York State Superintendent of Insurance, the banking industry and the monoline financial guarantee insurance industry."
What does this mean to MBIA-insured bondholders? That's hard to say. While overall credit quality is up, according to the earnings release, it looks like there's still potential downside exposure. MBIA included this in its announcement: "The overall credit quality of the insured portfolio remained high with 82.5 percent of the total book of business having underlying ratings of A or better as of December 31, 2007, versus 81.1 percent a year ago. More significantly, the Triple-A-rated content of the outstanding insurance portfolio has increased to 24.6 percent from 20.9 percent at the end of 2006. Also, the percentage of the portfolio rated below investment grade on an S&P priority basis decreased to 1.4 percent as of December 31, 2007 from 1.9 percent as of December 31, 2006. (MBIA's below investment grade net par exposure includes $10.6 billion of home equity lines of credit and closed-end second RMBS and multi-sector CDOs of high grade CDOs, which were not rated below investment grade under the S&P priority basis as of December 31, 2007.) The largest reduction in the below investment grade-rated portion of the insured portfolio resulted from the elimination of MBIA's $1.6 billion exposure to Eurotunnel during 2007. Based on MBIA's internal ratings, the percentage of the portfolio rated below investment grade increased to 2.1 percent as of December 31, 2007, from 1.2 percent as of December 31, 2006."
