MBIA Plans to Split, Cuts Dividend, Questions 2007 Results
Submitted by
CalculatedRisk on Mon, 02/25/2008 - 3:17pm (84 comments)
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That's TWO comic relief posts in a row CR - thanks!
Something's fishy!
Hahahah. I was just going to post this link. Stocks rally on mbia keeping credit rating, then they announce this weird breakup "within five years" Maybe the five years part is to show just that they are in no rush, what with their stellar rating and all
betcha FGIC recinds there request for a split.
Let me guess... markets up 300 on the announcement.
"We can expect a bumpy ride..." from Jay Brown.
Really? With the Channel Re downgrade, these guys should be no more than AA if not lower. Did the agencies not see the price deterioration from Dec to Jan?
I got hammered on my MBI puts today. Will add to SKF tomorrow as the disaster looms.
Re 2007 results:
Sounds like that MBIA CEO doesn't want a prison cell next to Bernie Ebbers and Dennis Koslowski. Apparently, Ken Lay's place is available.
Sarboxed into a corner!
CR- this reads like an "agreement in principle", maybe one of the resident legal experts could comment further-
Expired
Split within 5 years? Why even mention it now?
That must be the preferred time unit for rating agency down grades... they have to get the job done some time before one down grade comes out... they figure that gives 'em about five years.
Trouble is a company could lose a lot of Kerviels over that period... well not THAT many 'cause there aren't that many Kervials in existence... but you get the idea.
MBIA asks, "Hey, Sweety! Do you like my new lipstick?"
and wtf is this?-
"After nine years of trying to use mainly logic to make this argument to those who can affect this change, we have decided to enlist help and thus will earmark a minimum of $1 million this year to support the Coalition for a Domestic Insurance Industry. We are prepared to pay more if that proves insufficient! Ive been against this loophole for years, and discussed it in my first investor conference in 1999. I still dont look good in Bermuda shorts but we will eventually have to move the company if the U.S. tax code is not modified."
"Split within 5 years? Why even mention it now?"
Because the market wants an answer now.
I think US dress code allows Bermuda shorts, like UPS guys.
I think I may start lumping the rating agencies in with NAR. Its almost to that point.
Good news!! I thought it was going to be six years, WOW this is really great news.
Brian23... what do you mean "almost"
"Brown also said he has ``questions'' about the company's 2007 preliminary results"
Yes, it does appear that at least one provision of SarbOx is having an impact.
I loved that comment someone posted that you can be insolvent years before going bankrupt.
Translation: Our auditors won't certify that we are a going concern unless I tell you all the bad stuff we've been hiding.
Doesn't look good in Bermuda shorts but threatens to move the company offshore?
May prison stripes would be more attractive.
Maybe we send some of our financial whiz-bang companies to China in return for some manufacturing concerns that make products and profits.
"We are prepared to pay more if that proves insufficient!"
Is anyone #$%^%$# home there? You just axed your freakin dividend, but, you'll dole out whatever it takes-
unbelievable.
MBIA asks, "Hey, Sweety! Do you like my new lipstick?"
"Yes honey, but I think your ass is hanging out of that dress!"
The SEC, OTS, Ratings Agencies, etc. are all bought and paid for and are not going to honestly audit their master's books for real huh? If this had been an honest audit you would have seen:
1. MBIA and Ambac's ratings dropped
2. Fines levied for untimely submission of financial information about mark to myth assets for openers.
3. Jail time for those responsible for allowing this whole mess to occur.
Even better, if The SEC, OTS, Ratings Agencies and all these other auditing bodies were doing their jobs they never would have allowed any company to mark anything to market. Whoever decided that allowing companies to use this practice and not expect them to mark their assets higher than they're actually worth needs to wake up. If a loophole exists expect people to take advantage of it...
"the company's auditors to establish best estimates"
So the auditors are auditing there own numbers? Huh. Sounds like the SEC, ASB or some other entity might want to look into that...
So are the monolines (really should be called duolines) going to pull what Fannie Mae did and just stop reporting financials?
Sox 302 is giving this guy heartburn - just sign the dam thing, I am sure you already cashed you bonus?
Somehow the Powers-That-Be-Club seems to be missing the point that 2 or 3 trillion dollars on the sidelines are waiting for the markets to become more trustworthy. Pretending everything is fine will probably not deceive investors who are smart enough to still have money. Most fund managers don't have the volition to stay on the sidelines for any length of time, but if the moo crowd all gets worried at the same time then there will be a stampede for the exits. My view is that will happen before money returns from the sidelines.
any relation of this "split" to the Buffett offer of 2 weeks ago to pick up the municipals?
The CEO telegraphs that 2007 earnings are going to be revised downwards and that they have eliminated dividends. Result? Up 20% in one day!
Truly, the behavior of a AAA-rated company.
S&P has boxed themselves in quite nicely. They can't very well reopen the issue in the near future and yet the following could happen almost immediately:
1) MBIA & Ambac insure muni issues and the SAR still fails-- i.e., the market tells S&P what they think of their product with their feet;
2) Very nasty news keeps on a comin' out of Ambac and MBIA.
I'm simply in awe of people who own shares of MBIA and Ambac. You magnificent bastards...
Split within 5 years! Buffett's going to be writing a LOT of muni-bond biz in the meantime.
Five years?
Auction-rate woes seeping into corporate sector
Auction-rate woes seeping into corporate sector - Financial Week
While public-sector borrowers continue to get hammered by the blackout in the auction-rate securities market, U.S. corporates are beginning to feel the pain as well.
Late last week, two companies reported in Securities & Exchange Commission filings that they had money stuck in illiquid securities, which will force them either to take write-downs or scrap plans for expansion.
ABX-HE-AA 07-2 under 30...That's impressive.
DOW up 1.5% while the ABX sets new lows on 18 of 20 issues!
I'll try it again...
Real conversation --
"Hello, is this Standerd's and Porrs? This is George Bush, US Merican, your president..."
"Yes, what do you want Mr. President?"
"You ever hear of the Patriot Act? It gives me the power to do anything."
"Yes, sir."
"We'll I'm callin' Mr. S&P, because if you downgrade MBIA, I'm going to invoke the Patriot Act on your ass and sent you to Guantanamo with the rest of them crazy terrists. Mericans don't want a downgrade. Not good for that stock market thingy."
"But, Mr. President, hiding the truth will only make matters worse..."
"Listen, boy, in Texas we've got a saying, "Wanted Dead or Alive.""
"What are you talking about?"
"Gotta go, Hannah Montana is on the Disney Channel now...Remember, boy, no downgrade."
Five years huh? Just stop writing Structured insurance for five years and you'll be out of the business anyway.
Sadly MBIA isn't likely to survive that long.
It's nice that a company borrowing at 20%, and exiting business has it's stock rising and a AAA rating. I think I'm going to apply for AAA rating. Sounds like a good deal.
Cheers,
The PBGC is allocating 15% to alt's and the GAO issues a new report-
"Despite closer monitoring by regulators, hedge funds still pose significant risks to the financial system, a government report said Monday.
The report by the Government Accountability Office, the investigative arm of Congress, found that hedge funds' inclination to take substantial risks with increasingly large sums of money -- and to leverage those bets -- means losses can spread and be magnified throughout the financial system."
Business Week Online > File Not Found
"Pensions plans' investments in hedge funds have grown from $3.2 billion in 2001 to $50.5 billion in 2006, the report found."
rc,
Well ain't them gubmint types smart and all. Whoooeee! They think that?
Only 10 years after LTCM huh?
"The GAO noted that those problems recall concerns about risks associated with hedge funds that have been present since 1998, when hedge fund Long-Term Capital Management came close to collapsing."
Sharp as bowlin' balls I say.
Cheers,
Did you ever think you would see the day when a company would 1) announce possibly accounting problems and 2) eliminate its dividend and 3) see its stock rally nearly 20%.
We live in strange times.
Misean-
Never ceases to amaze me. They are worried about pension exposure and the agency that insures the pensions is knee-deep in the shit-pile with 15% expected alt exposure.
party-o
Yeah. And DBP Pensions and monolines have me cranking up the voltage on the Super Colander Tin Foil Hat for a while now. PBGC is walked up to the craps table and rolled. I think when the dice stop bouncing, it will be seen as a poor roll.
Cheers,
Paging Eliot Spitzer...
"That said, it is clear that the continued lack of any market valuations based on cash trades continues, and the extreme spread widening we and others are forced to rely on for valuation in the credit derivative market means we are likely to have another MTM in the first quarter. And the continued uncertainty surrounding the housing market, liquidity for refinancings, impact of the interest rate cuts and Congress economic stimulus legislation mean we will need to continuously review our loss reserve modeling assumptions." Brown
Oh dude, that was for the end of 2007. Have you looked at ABX lately? Kiss it good-bye.
I took a look at an Ambac policy the other day, which happened to be appended to the $50 million Las Vegas Convention and Visitors Authority revenue bond issue sold on Nov. 14. This was a somewhat unusual issue in that the authority sold the bonds at auction, and paid for the insurance up front. Usually the underwriter has the option of bidding with or without insurance.
This Policy is noncancelable,'' it says.The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to maturity.'' The policy does not insure ``against any risk other than Nonpayment.''
There was nothing in the specimen policy mentioning a rating downgrade. On page 4, under the section entitled Bond Insurance'' was this sentence:No assurance can be given by the Authority that the Bond Insurer will be able to meet its obligation under the Policy.''
Time to Pull Out, Read Your Bond Insurance Policies:
- Bloomberg.com
"Mr. Ackmans objective is less complex; he will stop at nothing to increase his already enormous personal profits as he systematically tries to destroy our franchise and our industry. His campaign against us has increased our cost of capital, but his intent to force a collapse has no chance to succeed. Clown Brown
MBIA down 90%. Ackman will make, oh, about $100 million this year. Yeah, he's a failure.
You can't make this stuff up!
Just making sure I have this straight-
PFE has approximately 27B in cash, eq, and short-term investments, raised their divi, is actively buying back stock, and lost their AAA from fitch-
Pfizer loses top AAA rating from Fitch
| Reuters
PFE: Pfizer Investors | Pfizer: the world's largest research-based pharmaceutical company
PFE: Balance Sheet for PFIZER INC - Yahoo! Finance
unbelievable.
SC,
"we will need to continuously review our loss reserve modeling assumptions." Brown."
Bwahaahahaha. Yeah, maybe if he had done the in say 2000, when the modeling assumption was "It's sunny and ponies are dropping from heaven. What could possibly go wrong." they wouldn't be where they are now.
Cheers,
"Split within 5 years? Why even mention it now?"
This is a postponement and public negotiation tactic. If you are in a big fight in a corporate and don't want a direct confrontation, what you do is saying "I like your idea and will do it later" as a more polite way to say no. It saves face for the NY Insurance superintendant since he is pushing for the break up. MBIA is essentially saying that "our capital is enough to get AAA rating and get off our back. If we fail, we will break up the company. But for now we are going forward with our plan". And the ball is in NY Inusrance Superintendant's court now. He can keep pushing for break up or more likely just wait and see how the muni market react. If the muni market react positively to all the news. His work is done until the next crisis hit the muni market. If the muni market continue to be in chaos, watch for more pressure from him to break up the company right away...
Expired
"HARTFORD, Conn. (AP) -- Five former insurance company executives were found guilty Monday of a scheme to manipulate the financial statements of the world's largest insurance company, American International Group Inc.
The defendants, including four former executives including a onetime CEO of General Re Corp., and a former executive of AIG, sat stone-faced as they were convicted of conspiracy, securities fraud, mail fraud and making false statements to the Securities and Exchange Commission."
Paging Mr. Brown...Courtroom 1 please, Mr. Brown.
My theory on "Why 5 years?"
I seem to recall that CDS is quoted in the bps top insure against default for 5 years. So, if that's the term they write, and if they stop writing CDS now, 5 years from now, it will be really easy to split off the CDS business.
Of course what do I know? I'm just a geek.
SC,
Not Uncle Warren, the squeakiest of the squeaky clean. Say it isn't so.
Cheers,
My theory for 5 years. Jay Brown has five fingers on his left hand which he happened to be looking at when asked when the split would occur.
Misean-
"Not Uncle Warren"
Think about this for a second or two, MBIA and Berkshire Hathaway both hold the coveted AAA with S&P.
I feel better now.
Did you notice Brown said he is MBIA's largest shareholder and hasn't sold a share. So, he's a LOT poorer but still vowing to fight for shareholders. That's probably why they brought the old geezer back.
To hell with policyholders. Power to the shareholders.
I really doubt he's the right work-out specialist for the job. But if you're a shareholder facing extinction, what difference does it make?
You get the feeling a lot of the current shareholders of MBIA don't plan to stick around very long?
Well isn't that special.
"Ambac Named 2007 Monoline of the Year by ISR"
Ambac Named 2007 Monoline of the Year by ISR
I need to wipe the martini off my monitor now.
Cheers,
Misean-
I have to ask-
who was the runner-up?
ISR stands for International Securitization Report. Hmmm... Good thing they're getting something for wrapping all those CDOs.
Read this ;ink at your peril.
"US banks have no reserves; they are for all intents and purposes, broke. In fact they are beyond broke and as I suggested last year banks are now sub-prime. 150% of the reserves at depository institutions are borrowed. That can only mean one thing, the banks have lost 1.5 times their original non borrowed reserves. Not only have they lost what they had, they went on and lost half as much again. If you or I did that, we would be bankrupted and probably arrested for attempting to defraud the lender."
"The Collection Agency" by Mick Phoenix, FSU Editorial
02/25/2008
Cheers,
rc,
FGIC???
Cheers,
Sounds like another piece of bad news:
UPDATE 2-Variable-rate note market now freezing-sources
Variable-Rate Note Market Now Freezing-Sources
| Reuters
Of course because financial engineering is one of the few remaining business the USA is dominant.
This country is going to experience some interesting times over next decade...
My view is that will happen before money returns from the sidelines.
"Money on the sidelines" is one of my least favorite market-isms... Where exactly is all this money on the sidelines?
I have $100 dollars in my savings account and Joe has 1 share of XYZ corp. I buy the share for $100 dollars and now I have a share and Joe has $100 dollars in his savings account. Is there more or less money on the sidelines?
What the market really means when they talk about "money on the sidelines" is "potential money" or money that hasn't been created yet.
In other words, if I'm thinking about borrowing money from my HELOC to buy stock there is "money on the sidelines".
Now, where exactly are all the people ready and willing to leverage up to buy into this market?
Hussman says it better:
Hussman Funds - Weekly Market Comment: July 10, 2006 - There's No Such Thing as Idle Cash on the Sidelines
FDIC to Add Staff as Bank Failures Loom - WSJ.com
The five year statement sounds to me like they think they can wait the market out. Once the credit markets recover, they can spin the structured finance insurance side off at a much better price than today.
I think the risk still exists that the credit markets deteriorate much more, causing increasing losses that will close their window of opportunity.
They don't know how much they lost in 2007.
They don't know how much they will lose in 2008.
They have "plenty of cash" to pay claims but they won't pay a $174 million dividend.
Someday before the sun explodes they might restructure.
What would they have to do to lose their rating?
Kicker,
Maybwe they mean the PM sitting in my safe.
Cheers,
This is incredible! It's a bigger farce than an afternoon soap opera or a B rated movie.
"I'm simply in awe of people who own shares of MBIA and Ambac. You magnificent bastards..."
Holy $hit, make that two of us! Astonished at how they get away with this corporate behaviour... We've a banana republic now of Corporate integrity, regular integrity, system oversight...Holy Chiquita!
FFDIC, you getting any phone traffic due to info rc posted?
Cheers,
risk capital, good link on the fdic.
Regarding your 6:56 ... it's called blackmail. Send that letter with that part highlighted to Sens. Baucus and Grassley. They control the reigns on the irs and they're not from NY. I think that they've held hearing on companies offshoring. They don't like it. I'm sure they'll get a real kick out of the bermuda shorts comment.
Isn't "bumpy ride" what Bette Davis said in All About Eve? I can't wait for the rest of the movie.
Maybwe they mean the PM sitting in my safe.
Let me know when you're ready to borrow against it to buy stocks. At that point I'll be ready to go all in.
Reading the CEO letter, for some reason I really like "the Honorable Eric Dinallo". You know, as distinct from all those other Eric Dinallos.
Kicker,
I've been asked to borrow against/sell to buy REO. I've seen no deal I would fund. But I'll keep you in mind.
Cheers,
risk capital, I checked out the actual job posting... it was opened on 2/20 and closes on 2/28. That tells me this isn;t an "all-hands-on-deck" situation... yet. But 100 banks can become 1000 very quickly if panic sets in.
"If you or I did that, we would be bankrupted and probably arrested for attempting to defraud the lender."
They are not us and we are not them. These guys forget that over and over and over then act shocked when they 'report' it.
If we had a generous rich old uncle who could lend us money at will and showed no hesitation to do so and provided the most reasonable terms to repay (like lending us the money to repay him - over and over and over)... then we might ALMOST be like the banks. The banks have an even better deal 'cause their uncle can just print and give it to them.
The financial sense guys act like there really is a finite amount of money... the amount of money is only constrained by human discipline and the memory in banking ERP systems (how many digits they can process). Grains of sand and stars in the sky are more constrained.
FDIC spokesman Andrew Gray said the agency was looking to bulk up "for preparedness purposes." The division now has 223 employees, mostly based in Dallas.
Looks like an economic stimulus opportunity in the making... Jobs bill equals staffing FDIC at sufficient levels to man the USS RTC II.
"Misean writes:
Well isn't that special.
"Ambac Named 2007 Monoline of the Year by ISR"
Business Wire newsLang=en
I need to wipe the martini off my monitor now. "
Misean, that was cruel. Now I have to clean my dinner off of my keyboard.
Oops,
That anonymous was me.
dryfly,
I am not as certain as you that they can print ad infinitum. Although, I'll agree, they can print a lot.
Jeff,
Sorry man I posts 'em as I gets 'em.
Cheers,
So Misean, do you have a projection for the February 28th Fed report on nonborrowed reserves? A linear projection would take us to negative $29 billion, for the week ending Feb. 20th. If so, I suspect the bimonthly TAF will have to be raised to $40b (which equals the amount of required reserves and is approaching 5% of the US monetary base reserves). The FT article indicated that loans make up most of the TAF collateral, but that just means they can't be marked to market and the Fed can't give them as big a haircut.
Has anybody else here noticed that the most cheerful commenters (for example Misean) are the ones who have stockpiled gold and silver?
What does that tell you?
and palladium
5 years is the term for the call provision of the $1b surplus note priced at 14%. There are some provisions in there may be some provisions triggered by a structural change. dilutions or immediate repayment that aren't feasible right now.
risk capital:
Mr. Brown is trying to distinguish MBIA from other firms in bed with the City of London. He's playing on the very elements that led the United States of America to become a sovereign nation in the first place. He's putting MBIA on the side of patriotic fair play and others in bed with the century's old home of tyranny, financial and otherwise -- the masters of unregulated off-shore banking: Great Britain. In my opinion, this is either a brilliant strategy on Mr. Brown's part or the death knell of this country. And unless intelligent people like you and others who comment on this blog wake up, I'll guess the latter. And yes, Mr. Brown should "dole out whatever it takes" to make his case at this point. Clearly, it is do or die time and his letter indicates he is fully aware of this.
p.s. Did you notice where all Ambac's "award winning" deals occurred in '07? Closer to the "Mother Ship."
p.p.s. WSF: It's not "blackmail." It's funding a war chest.
This is a postponement and public negotiation tactic.
rc helicopter
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