MBIA Seeks New Capital to Support its Credit Ratings
MBIA Inc., whose credit guarantees stand behind billions of dollars in subprime mortgage bonds, posted a $2.3 billion loss in the fourth quarter, blaming the problem partly on the performance of second liens and "CDO squared" transactions.
In the fourth quarter alone, it marked down the value of insured credit derivatives by $3.4 billion, saying the move resulted "from wider spreads for CMBS and RMBS collateral" and downgrades related to bonds held in collateralized debt obligation structures.
Meanwhile, UBS has warned it may take a net loss for the year due in part to estimated losses on U.S. mortgage-related positions totaling $14 billion: $12 billion of the losses were on positions related to the U.S. subprime mortgage market. The other $2 billion in losses were on other positions related to the U.S. residential mortgage market.
In addition to the writedown, MBIA also said last week that it has moved to shore up its capital, selling $500 million in common stock to investment fund Warburg Pincus Inc. If MBIA's credit ratings slip, holders of CDO and ABS bonds it insures may be forced to take writedowns on those securities.
MBIA executives in a lengthy earnings conference call sought to reassure investors that it would have enough capital to survive what they called extraordinary times for both the company and the industry that are expected to lead to consolidation and new, higher pricing in the sector.
In other bond insurer news, Fitch Ratings has downgraded bond insurer Financial Guaranty Insurance Co. to AA, making it the third major guarantor to lose its top rating. Regulators have been keeping a close eye on the industry. The other two insurers that have received downgrades to AA include MBIA and Ambac. Bond insurers generally have been scrambling to reassure investors and restore their ratings as a result.
MBIA executives during the conference call said even with the downgrade taken into account they feel their capital position is secure.
The company's investors appeared to be concerned but not panicking as stock price movements were relatively stable. The company said it received hundreds of questions submitted for its conference call and has ended its policy of live questions due to what its executives said they feel have been several that have been too adversarial.
All three aforementioned bond insurers cover asset-backed subprime bonds held by institutional investors, including Fannie Mae and Freddie Mac. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/