MBIA

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MBIA, Inc. (MBIA)
Type Public
Traded as NYSEMBI
Industry Finance
Headquarters Armonk, New York
Revenue Increase US$894 Million (FY 2010)[1]
Operating income Decrease US$95.2 Million (FY 2010)[1]
Net income Increase US$52.5 Million (FY 2010)[1]
Total assets Increase US$32.3 Billion (FY 2010)[2]
Total equity Increase US$2.83 Billion (FY 2010)[2]

MBIA, Inc. is a financial services company. It was founded in 1973 as the Municipal Bond Insurance Association. It is headquartered in Armonk, New York, and has approximately 400 employees. MBIA is the largest bond insurer.[3] [4]

Functions of the company[edit]

MBIA is a monoline insurer primarily of municipal bonds and on asset-backed securities and mortgage-backed securities. Financial insurance or Financial Guarantees are a form of credit enhancement. It also provides a fixed-income asset management service with about forty billion dollars under management.

History[edit]

A consortium of insurance companies (Aetna, Fireman's Fund, Travelers, Cigna, and Continental) formed the Municipal Bond Insurance Association in 1973 to diversify their holdings in municipal bonds. The company went public in 1987.

In 2002, Bill Ackman, a hedge fund manager, began research which concentrated on challenging MBIA's AAA rating, despite an ongoing probe of his trading by New York State and federal authorities. He was charged copying fees for copying 725,000 pages of statements regarding the financial services company, in his law firm's compliance with a subpoena.[5] Ackman has called for a division between MBIA's bond insurers' structured finance business and their municipal bond insurance side, despite statements from the insurance companies that this would not be a viable option.[6]

He argued that the billions of dollars of CDS protection MBIA had sold against various mortgage backed CDOs was going to be a problem. He also argued that it was not proper for MBIA, which was legally restricted from trading in CDS, to instead do it through a second corporation, LaCrosse Financial Products, which MBIA described as an "orphaned subsidiary". Ackman bought credit default swaps against MBIA corporate debt as a way to bet that it would crash. When MBIA did, in fact, crash as the financial crisis of 2008 came to a head, he sold the swaps for a large profit. Ackman reportedly attempted to warn regulators, rating agencies and investors about the bond insurers' high risk business models. The story of Ackman's battle with MBIA was turned into a book called Confidence Game (Wiley, 2010) by Bloomberg News reporter Christine Richard.[7] He reported covering his short position on MBIA on January 16, 2009 according to the 13D filed with the SEC.[8]

In 2009, MBIA Corp. (NYSE:MBI) was replaced by Mead Johnson Nutrition Co. (NYSE:MJN) in the S&P 500.[9]

Credit rating history[edit]

  • April 4, 2008. Fitch Ratings cut MBIA's Insurance Corp rating to AA from AAA with a negative outlook.[10] Fitch issued the new, lower rating even though MBIA had asked the ratings company, the month before, to stop assessing its credit worthiness.
  • June 4, 2008. Moody's Investors Service announced that it would review MBIA's rating for possible downgrade for the second time in the year.[11] Four months before this announcement, on February 2008, Moody's had affirmed the AAA rating after MBIA raised $2.6 bn in capital and announced that would stop insuring structured finance securities for six months.
  • June 6, 2008. Despite having affirmed MBIA's AAA rating on February 2008, Standard and Poor's decided to downgrade MBIA's Insurance Financial Strength (IFS) rating from AAA to AA.[12]
  • June 19, 2008. Moody's downgraded MBIA's credit rating 5 notches to A2.[13]
  • November 7, 2008. Moody's further downgraded the IFS rating to "Baa1" from "A2" .[14]
  • June 25, 2009. Moody's downgraded MBIA from "Ba3" to "Ba1" which is a speculative grade.[15]
  • March 5, 2010. Moody's referred to MBIA's IFS rating as "B3".[16][17]

References[edit]

  1. ^ a b c MBIA (MBI) annual SEC income statement filing via Wikinvest
  2. ^ a b MBIA (MBI) annual SEC balance sheet filing via Wikinvest
  3. ^ Kathleen Pender (2007-12-20). "Municipal bonds hit by mortgage fallout". The San Francisco Chronicle. 
  4. ^ History, MBIA website, accessed 2010 4 15
  5. ^ Richard, Christine; Katherine Burton (January 31, 2008). "Ackman Devoured 140,000 Pages Challenging MBIA Rating". Bloomberg. Retrieved February 22, 2008. 
  6. ^ "MBIA: Call to divide not viable". CNN. February 20, 2008. Retrieved February 26, 2008. 
  7. ^ Confidence Game by Christine S Richard, Bloomberg News, 2010
  8. ^ http://www.marketfolly.com/2009/01/bill-ackmans-pershing-square-files-13d.html Bill Ackman's Pershing Square Files 13D on Borders, Covers MBIA Short
  9. ^ Harrow, Elizabeth, "MBIA booted from S&P 500 Index", AOL Money & Finance, December 14th 2009.
  10. ^ Richard, Christine S. (April 4, 2008). "MBIA Loses AAA Insurer Rating From Fitch Over Capital". Bloomberg.com. 
  11. ^ "Moody's says will likely cut MBIA, Ambac ratings". Reuters. June 4, 2008. 
  12. ^ "S&P cuts top ratings for MBIA, Ambac bond insurers". Reuters. June 5, 2008. 
  13. ^ MarketWatch (June 19, 2008). "Moody's downgrades Aaa rating of Ambac, MBIA". Dow Jones. 
  14. ^ Brettell, Karen (November 7, 2008). Grebler, Dan, ed. "Moody's cuts MBIA Insurance to "Baa1"". Reuters. Retrieved November 2, 2010. 
  15. ^ "Rating Action: MBIA Insurance", Moody's Investor Service, 25 June 2009.
  16. ^ "Moody's comments on MBIA's fourth quarter earnings and ongoing litigations", Moody's Investor Service, March 5, 2010
  17. ^ Cf. also later cited in Smith, Dick P., December 29, 2010, pp.13-14, inter alia.

Further reading[edit]

External links[edit]