Mortgage Bond Insurer Takes Huge 4Q Loss

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. CDOs include tranches of subprime asset-backed securities. MBIA also announced 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.