MBI - MBIA Inc.

[fareastwarriors]

holders of MBI stock

[muscleman]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

Cardboard

 

Maybe this is intentional. He wants to buy back $5B worth of BAC shares as cheaply as possible, before settling with MBI.

 

That is quite risky. Buying back shares is intended to increase shareholder value, while running more legal risks is to decrease shareholder value. How could the move be such a calculated one that he is sure the eventual result is an increase in shareholder value?

 

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

 

You didn't get that $40 bn number from me I hope.

 

I threw that number out there not to imply that an article 77 ruling itself would force them to pay up $40bn.  Rather, if they lose successor liability as well as the article 77, then BAC management might have to increase the legal reserve for settling the present $8.5bn number at a higher level.  So I pulled out a totally arbitrary massive number of $40bn -- and the amount was to quiet down your alarmist claim that they would be worthless, so I showed how even an incredibly large reserve boost would still leave them nowhere near a crisis.

 

Why do you think BAC will go up to $20 in two years? It is already trading at the tangible common book value now.

If it can go to the $20s, it means the ROE has to be 15%, which is quite difficult.

[wescobrk]

Why do you think BAC will go up to $20 in two years? It is already trading at the tangible common book value now.

If it can go to the $20s, it means the ROE has to be 15%, which is quite difficult."

 

BAC actually needs to advance at least 10% to reach tbv

 

 

[ERICOPOLY]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

Cardboard

 

Maybe this is intentional. He wants to buy back $5B worth of BAC shares as cheaply as possible, before settling with MBI.

 

That is quite risky. Buying back shares is intended to increase shareholder value, while running more legal risks is to decrease shareholder value. How could the move be such a calculated one that he is sure the eventual result is an increase in shareholder value?

 

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

 

You didn't get that $40 bn number from me I hope.

 

I threw that number out there not to imply that an article 77 ruling itself would force them to pay up $40bn.  Rather, if they lose successor liability as well as the article 77, then BAC management might have to increase the legal reserve for settling the present $8.5bn number at a higher level.  So I pulled out a totally arbitrary massive number of $40bn -- and the amount was to quiet down your alarmist claim that they would be worthless, so I showed how even an incredibly large reserve boost would still leave them nowhere near a crisis.

 

Why do you think BAC will go up to $20 in two years? It is already trading at the tangible common book value now.

If it can go to the $20s, it means the ROE has to be 15%, which is quite difficult.

 

The reasoning is that the Q4 results suggested that they are earning $1.60 per share before runoff expenses.  At 10x earnings, that's $16.  We expect the runoff expenses to be fully runoff in two years.  So that gives you $16.

 

Then you only need to come up with $4 more.  Well, knock $1.30 off the price for the value of the tax asset, and you are at $18.70.  Then we're down to only a $2.70 excess over $16.  That could be achieved from earnings in 2013 and 2014 year and the next.  Maybe the earnings come short a bit and it's $19.50 or so in two years.  But $20 is a nice round number.

 

However, there may be a nasty recession and there may be a nasty legal outcome.  So those are the reasons why it might not get to $20 in two years.

 

$16 is only 10x earnings multiple and 12% ROTE.  They could easily be earning 13% ROTE per Moynihan's statements of the minimum range to expect from them in a couple of years.

 

 

[muscleman]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

Cardboard

 

Maybe this is intentional. He wants to buy back $5B worth of BAC shares as cheaply as possible, before settling with MBI.

 

That is quite risky. Buying back shares is intended to increase shareholder value, while running more legal risks is to decrease shareholder value. How could the move be such a calculated one that he is sure the eventual result is an increase in shareholder value?

 

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

 

You didn't get that $40 bn number from me I hope.

 

I threw that number out there not to imply that an article 77 ruling itself would force them to pay up $40bn.  Rather, if they lose successor liability as well as the article 77, then BAC management might have to increase the legal reserve for settling the present $8.5bn number at a higher level.  So I pulled out a totally arbitrary massive number of $40bn -- and the amount was to quiet down your alarmist claim that they would be worthless, so I showed how even an incredibly large reserve boost would still leave them nowhere near a crisis.

 

Why do you think BAC will go up to $20 in two years? It is already trading at the tangible common book value now.

If it can go to the $20s, it means the ROE has to be 15%, which is quite difficult.

 

The reasoning is that the Q4 results suggested that they are earning $1.60 per share before runoff expenses.  At 10x earnings, that's $16.  We expect the runoff expenses to be fully runoff in two years.  So that gives you $16.

 

Then you only need to come up with $4 more.  Well, knock $1.30 off the price for the value of the tax asset, and you are at $18.70.  Then we're down to only a $2.70 excess over $16.  That could be achieved from earnings in 2013 and 2014 year and the next.  Maybe the earnings come short a bit and it's $19.50 or so in two years.  But $20 is a nice round number.

 

However, there may be a nasty recession and there may be a nasty legal outcome.  So those are the reasons why it might not get to $20 in two years.

 

$16 is only 10x earnings multiple and 12% ROTE.  They could easily be earning 13% ROTE per Moynihan's statements of the minimum range to expect from them in a couple of years.

 

I see... I am a bit surprised that you will continue to hold the stock after it is already close to the book value. You mentioned that this is the only stock you hold, so you think this is the best opportunity then?

I have other financials like AIG and AGO, other than my MBI position. They are all way below book value. What about European banks like SAN? It has only 16% operations in Spain and it has a strong US and South American market share. Do you think SAN is less attractive to own than BAC at current price?

[ERICOPOLY]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

Cardboard

 

Maybe this is intentional. He wants to buy back $5B worth of BAC shares as cheaply as possible, before settling with MBI.

 

That is quite risky. Buying back shares is intended to increase shareholder value, while running more legal risks is to decrease shareholder value. How could the move be such a calculated one that he is sure the eventual result is an increase in shareholder value?

 

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

 

You didn't get that $40 bn number from me I hope.

 

I threw that number out there not to imply that an article 77 ruling itself would force them to pay up $40bn.  Rather, if they lose successor liability as well as the article 77, then BAC management might have to increase the legal reserve for settling the present $8.5bn number at a higher level.  So I pulled out a totally arbitrary massive number of $40bn -- and the amount was to quiet down your alarmist claim that they would be worthless, so I showed how even an incredibly large reserve boost would still leave them nowhere near a crisis.

 

Why do you think BAC will go up to $20 in two years? It is already trading at the tangible common book value now.

If it can go to the $20s, it means the ROE has to be 15%, which is quite difficult.

 

The reasoning is that the Q4 results suggested that they are earning $1.60 per share before runoff expenses.  At 10x earnings, that's $16.  We expect the runoff expenses to be fully runoff in two years.  So that gives you $16.

 

Then you only need to come up with $4 more.  Well, knock $1.30 off the price for the value of the tax asset, and you are at $18.70.  Then we're down to only a $2.70 excess over $16.  That could be achieved from earnings in 2013 and 2014 year and the next.  Maybe the earnings come short a bit and it's $19.50 or so in two years.  But $20 is a nice round number.

 

However, there may be a nasty recession and there may be a nasty legal outcome.  So those are the reasons why it might not get to $20 in two years.

 

$16 is only 10x earnings multiple and 12% ROTE.  They could easily be earning 13% ROTE per Moynihan's statements of the minimum range to expect from them in a couple of years.

 

I see... I am a bit surprised that you will continue to hold the stock after it is already close to the book value. You mentioned that this is the only stock you hold, so you think this is the best opportunity then?

I have other financials like AIG and AGO, other than my MBI position. They are all way below book value. What about European banks like SAN? It has only 16% operations in Spain and it has a strong US and South American market share. Do you think SAN is less attractive to own than BAC at current price?

 

I profess to not know what the best stock is in the market, nor what the best opportunity is.  To my detriment I'm sure!

 

However I feel comfortable with 100% upside in BAC.  It is 85% hedged at $12 strike and 15% hedged at $10 strike.

 

My downside is about 87% in FFH.  And I'm hedged 20% with IWM puts (Russell 2000).

 

EDIT:  Anyhow, I might add that discounts to book value don't matter as much as price you pay relative to earnings power.  And of course, the staying power of those earnings over the long term.

[Guest Dazel]

 

 

 

Ericopoly,

 

Why not just sell the BAC to a 15% long position...cap gains?

 

I too have been brushing up on my Fairfax numbers...they sometimes do not hedge well though...with former massive bond portfolio and the CDs portfolio I could follow movements...they seem to be hedged to the point of cash holdings...ie hedges and stocks equal out for the most part...so you are buying underwriting and not much upside left in the bond portfolio.

 

Am I missing something?

 

By the way sold of Mbia at $12.60 looking to reenter...I know it is an mbia thread.

 

Dazel.

[Guest Dazel]

 

 

Ericopoly,

 

Forget it...got it on the Fairfax thread.

 

 

Dazel.

[Cunninghamew]

Mere Whitney and a guy from Bernstein asked questions about litigation going forward. I recorded the questions/answers and can transcribe them in a litle while.  I didn't find the answers to be that helpful. But here is one small tidbit that I would not read a ton into

 

Bernstein "there was some concerns that recent legal decs. in monoline cases around causation might impact your estimates there and it doesnt look like it did. Can you tell us why that did not impact your outloon on the  RPL number?"

 

BAC: "once again the RPL number that we have within the rep & warrant will continue to be up to $4 billion... at this point given we dont have repurchase history with the monolines. The monolines are covered within our litigation reserves and we have both litigation reserves along with a range of possible loss from litigation and you should assume that there was some additional moneys during the quarter for litigation expense that was set asside for the monolines."

[MYDemaray]

Anyone think about what happens if MBIA structured finance goes into bankruptcy?  Specifically, where does BAC end up in the capital stack given that they are now debt holders? I realize that management and the dept of insurance are likely to maintain control, but does BAC end up with a seat at the table?

 

Secondly, I think MBIA holders who have been pinning their hopes of the G&B settlement failure threat as a catalyst for BAC to settle with MBIA need to rethink that thesis.  In addition the problems previously outlined -- that these trusts are governed by the PSAs -- and you need a 25% ownership thresshold, of which the world's largest investors were only able to get a fraction of (they eventually agreed to the G&B settlement) -- today BAC announced a $500M settlement which covers 70% of all BAC mortgage backed securities and includes a claims release, and includes trusts in the G&B settlement....to me, that implies that getting to a 25% threshhold to direct BONY for the remaining will be virtually impossible.  Right now, I think MBIA's best lever is the court system itself, specifically Flagstar v AGO outcome.  As BAC pointed out today on the call, those trusts had a specific R&W against fraud, which CFC's trusts did not.  But still, rulings have been coming out on the side of MBIA...

 

 

[Cardboard]

Really happy that there was a ton of questions from analysts in the BAC conference call related to MBIA and the $8.5 Billion settlement. I hope that they learned something from it and that The Street does not like this uncertainty and this forever f... around with litigation reserves and the like. It just shows how much time and money they are wasting on this useless effort instead of spending time on their business which needs a lot more focus than it has gotten so far.

 

Cardboard

[Kraven]

I thought it was interesting to see that Cutwater, MBIA's asset management unit, expects to be out in the market by 3rd quarter with a new CLO program.  While they've had things under management before, I believe this would be their first time as issuer.  Could be a few bucks in their pocket.  I am pretty sure BAML won't be the underwriter though.

[muscleman]

http://www.reuters.com/article/2013/04/10/us-assured-jpmorgan-idUSBRE9390X920130410

 

Does anyone know details about this? I think BAC would jump at the judge and kept yelling that this case is more similar to the BAC vs MBI case.

[valuecfa]

In the mood for a high-stakes gamble?

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/in-the-mood-for-a-high-stakes-gamble-mbia-jackpot-hinges-on-a-lawsuit/article11513958/

[PlanMaestro]

Last four paragraphs.

http://www.nypost.com/p/news/business/no_paulson_ally_9Xvzs1yBItCYIZg6kl80yK

[muscleman]

Last four paragraphs.

http://www.nypost.com/p/news/business/no_paulson_ally_9Xvzs1yBItCYIZg6kl80yK

 

This is funny. Do you believe that news websites are more manipulated today than before?

I have seen NY Post posting an article on a chatter that BAC only offers $1 bn for MBIA's settlement. Then I saw this. This news is all about Paulson and ResCop. At the end it suddenly mentions MBIA. What is the relation between these parties? :)

[valuecfa]

Last four paragraphs.

http://www.nypost.com/p/news/business/no_paulson_ally_9Xvzs1yBItCYIZg6kl80yK

 

Some have questioned the timing...but this seems possibly accurate. If not next month, it likely wouldn't be too much longer before the sub is taken over

[valuecfa]

Last four paragraphs.

http://www.nypost.com/p/news/business/no_paulson_ally_9Xvzs1yBItCYIZg6kl80yK

 

This is funny. Do you believe that news websites are more manipulated today than before?

I have seen NY Post posting an article on a chatter that BAC only offers $1 bn for MBIA's settlement. Then I saw this. This news is all about Paulson and ResCop. At the end it suddenly mentions MBIA. What is the relation between these parties? :)

 

Mbia is one of the large creditors suing Rescap/Ally

[sampr01]

Hi Valuecfa

What is the possibility, If that happens, what will happen to MBIA (stock). Thanks in advance.

 

Last four paragraphs.

http://www.nypost.com/p/news/business/no_paulson_ally_9Xvzs1yBItCYIZg6kl80yK

 

This is funny. Do you believe that news websites are more manipulated today than before?

I have seen NY Post posting an article on a chatter that BAC only offers $1 bn for MBIA's settlement. Then I saw this. This news is all about Paulson and ResCop. At the end it suddenly mentions MBIA. What is the relation between these parties? :)

 

Mbia is one of the large creditors suing Rescap/Ally

[valuecfa]

Hi Valuecfa

What is the possibility, If that happens, what will happen to MBIA (stock). Thanks in advance.

 

Last four paragraphs.

http://www.nypost.com/p/news/business/no_paulson_ally_9Xvzs1yBItCYIZg6kl80yK

 

This is funny. Do you believe that news websites are more manipulated today than before?

I have seen NY Post posting an article on a chatter that BAC only offers $1 bn for MBIA's settlement. Then I saw this. This news is all about Paulson and ResCop. At the end it suddenly mentions MBIA. What is the relation between these parties? :)

 

Mbia is one of the large creditors suing Rescap/Ally

 

The company with or without mbia insurance corp being taken over is worth more than the current share price. Of that I am confident. But I have no idea how the share price would react to the rehab that seems more and more likely as time goes on...barring any cash infusion from National

[valuecfa]

http://online.wsj.com/article/SB10001424127887323789704578447304181997608.html?ru=yahoo&mod=yahoo_hs

 

Bond insurer MBIA MBI -3.29% Insurance Corp. has retained law firm Weil, Gotshal & Manges LLP as it seeks to avoid a possible state takeover of a troubled subsidiary, according to people familiar with the matter.

 

The Armonk, N.Y., company, a subsidiary of MBIA Inc., could run out of money as early as May, when cash payments on billions of dollars of insurance claims over commercial mortgage-backed securities start coming due, the people said. One person familiar with the matter added that the company could have until August before the unit runs out of cash.

[PlanMaestro]

The more and more it seems that Brown gambled a home run with BofA because a single would not make it.

[prunes]

What happens to the lawsuit with BAC if the sub is seized? Do the regulators allow the fight to continue?

[MYDemaray]

Who thinks Lawsky is going to take them over, settle w/BAC for an incrementally larger amount than BAC is asking, but less than Brown is demanding, issue a press release, sprain his arm patting his own back, then announce his candidacy for some higher political office?...  ;)

[valuecfa]

Who thinks Lawsky is going to take them over, settle w/BAC for an incrementally larger amount than BAC is asking, but less than Brown is demanding, issue a press release, sprain his arm patting his own back, then announce his candidacy for some higher political office?...  ;)

 

:D As i posted before, this was an analyst's thoughts on the favoring of one party over the other:

 

To protect the interests of structured-product policyholders over muni policyholders would be robbing Peter to pay Paul while opening Lawsky up to litigation - perhaps another Article 78 - at a time when he needs a clean track record post the Standard Chartered/Iran debacle so he can run for NYAG.