MBI - MBIA Inc.

[valuecfa]

Nice. Good to see progress on the remaining litigation.

[johnpane]

Sounds like they are trying to emphasize a couple basic things here:

 

1) Their expected recovery bookings are reasonable

2) National's loan legally belongs to National, despite chatter to the contrary

 

Or, they are getting that settlement and transferring it to National before NYDFS takes over and slows that process down.

[mcristo]

To take a more cynical view, could this be interpreted as MBIA taking a large discount to their asking amount ($165mm) because they are concerned about the security of the intercompany loan in a rehabilitation of MBIA Corp.? Based on the AGO-FBC outcome, I would have thought MBIA would be in a very strong position to recover the full $165mm. If they were highly confident in the intercompany loan being upheld, why take the $55mm haircut, especially since you don't need the cash now at National?

 

I think this is probably good news for MBIA but just trying to play devil's advocate (I agree that everything seems to point to the intercompany note being rock-solid).

[valuecfa]

To take a more cynical view, could this be interpreted as MBIA taking a large discount to their asking amount ($165mm) because they are concerned about the security of the intercompany loan in a rehabilitation of MBIA Corp.? Based on the AGO-FBC outcome, I would have thought MBIA would be in a very strong position to recover the full $165mm. If they were highly confident in the intercompany loan being upheld, why take the $55mm haircut, especially since you don't need the cash now at National?

 

I think this is probably good news for MBIA but just trying to play devil's advocate (I agree that everything seems to point to the intercompany note being rock-solid).

 

MBIA CEO Jay Brown in a statement said the settlement amount was "consistent with our recovery expectations." Meaning within the amount that was reserved for. Could they have gotten more after a lengthy trial? Yes, i think that would be likely.  I view this as their reserves for putback litigation being reasonable and at a discount to full value as it pertains to remaining litigation

[indirect]

So they are willing to settle for 66 cents for a disputed amount of one dollar. If we take this to the disputed amount with BAC, they may be willing to settle for 3.5 billion?

[merkhet]

Is anyone else as surprised as I am that we didn't immediately get a missive from BTIG? :P

[valuecfa]

So they are willing to settle for 66 cents for a disputed amount of one dollar. If we take this to the disputed amount with BAC, they may be willing to settle for 3.5 billion?

 

You can't extrapolate it like that. Each case is different. Time value, breach rates, progression of each case, allegations, changes in the legal environment, and the ability of the counterparties to pay would impact the recovery rate assumptions, etc.

 

The 10-k breaks down the several variable that go into it.

 

If they weren't willing to take $3.5 Billion...I would personally buy a ticket to NY and give Jay a good smack on the head. Yes, MBIA would be thrilled to get that much in a settlement. Though BAC makes up the bulk of reserves, that is about the amount that they reserved for all remaining litigation, so don't count on that figure from BAC alone unless they get to a victory at trial. As far as settlement goes, I'm sure MBIA will accept quite a bit less.

[valuecfa]

Is anyone else as surprised as I am that we didn't immediately get a missive from BTIG? :P

 

While the $110mm settlement amount equates to just 6.7% of the intercompany loan balance, MBIA’s “magic number” – the amount it must receive from BAC upon the application of the proceeds to and other counterparties in aggregate to repay the loan and protect its equity – will drop to $1.54bn. It doesn’t matter whether that $1.54bn is received from BAC or any of its other R&W recovery targets, including Credit Suisse, ResCap, JPMorgan and others.

 

In other words, the bar for what would constitute a “good” settlement with BAC has been lowered for MBIA. And with each additional settlement that the bond insurer announces, that bar will be driven even lower.  (Of course, monetary consideration is not all that MBIA needs from BAC in a settlement; it also needs to have the bank terminate all of its outstanding lawsuits with the bond insurer so that the overhang from that litigation can be removed and the value of National can be unlocked for the benefit of the company’s shareholders.)

 

Read more: http://www.btigresearch.com/2013/05/02/mbia-settlement-with-flagstar-bank-shows-bond-insurer-has-more-than-one-path-to-making-equity-whole/#ixzz2SBYxt2I5

[Kiltacular]

Thanks for posting valuecfa

[merkhet]

http://finance.yahoo.com/news/why-large-trader-selling-calls-155532820.html

 

Ericopoly, was this you?  :P

[muscleman]

http://finance.yahoo.com/news/why-large-trader-selling-calls-155532820.html

 

Ericopoly, was this you?  :P

 

12600 calls means 1.26 million shares, if it is covered calls, which is worth over $10 Million for the underlying stock.

[Cardboard]

"In other words, the bar for what would constitute a “good” settlement with BAC has been lowered for MBIA. "

 

I disagree somewhat with his assessment. They got $0.66 on the dollar of losses which is a very big amount when applied to BAC. This $110 million is also coming at a very good time to continue the litigation if necessary. It gives a data point to BAC, Lawsky and everyone else.

 

I get the feeling that they are in intense negotiation with BAC considering the carefully crafted language of this latest press release. There was no trash talk once again. This Flagstar settlement is a really big lever that I failed to mention among others that I have outlined.

 

Maybe another small settlement combined with some financing and you have BAC standing in a very different spot at the negotiation table.

 

Cardboard

[ERICOPOLY]

http://finance.yahoo.com/news/why-large-trader-selling-calls-155532820.html

 

Ericopoly, was this you?  :P

 

That's funny, but no  :) 

 

 

[valuecfa]

"In other words, the bar for what would constitute a “good” settlement with BAC has been lowered for MBIA. "

 

I disagree somewhat with his assessment. They got $0.66 on the dollar of losses which is a very big amount when applied to BAC. This $110 million is also coming at a very good time to continue the litigation if necessary. It gives a data point to BAC, Lawsky and everyone else.

 

I get the feeling that they are in intense negotiation with BAC considering the carefully crafted language of this latest press release. There was no trash talk once again. This Flagstar settlement is a really big lever that I failed to mention among others that I have outlined.

 

Maybe another small settlement combined with some financing and you have BAC standing in a very different spot at the negotiation table.

 

Cardboard

 

What Palmer is saying is that 1.54 billion is what is required to unlock the full value of National, and make the stock worth his price target of $22.50. I agree with him and would be very satisfied with 1.54 billion settlement, implying a zero value to structured finance. I don't care what cents on the dollar it comes out to. Anything above that amount is just gravy...and potentially leaves residual value at structured finance. Like Palmer, I don't care if it comes from BAC or any of the other cases.

 

In regards to the continued litigation vs BAC...this Flagstar settlement does nothing to provide liquidity to continue fighting BAC. Jay implied that the proceeds went to National, not to Mbia insurance corp. Jay could move funds back to ins corp with approval to continue the litigation, but that is a double edged sword, b/c that money (if it were transferred to ins corp) would be available to BAC's claims as they come due.

[MYDemaray]

For all those inferring from Flagstar to BAC, I thought this was interesting from the BAC call:

 

Bruce Thompson - Chief Financial Officer

I’m not going to drill into the Flagstar case, but I want to be clear, Flagstar gave a borrower fraud reference [think this was supposed to be representation], and that was part of that case, which is not something we’ve done.

[CorpRaider]

Any of you mortgage insurance types kicking the tires on Ambac?  It came out of bkruptcy last week.

[muscleman]

Any of you mortgage insurance types kicking the tired on Ambac?  It came out of bkruptcy last week.

 

http://www.4-traders.com/AMBAC-FIN-11499/news/Ambac-Financial-Group-Inc-Ambac-Positioned-to-Emerge-From-Bankruptcy-16798250/

 

The existing common stock will be canceled and new common stock is issued for the claim holders.

I think the claim holders are usually fixed income holders who are motivated to sell as soon as they grab the shares. It could become an interesting buying opportunity in a few months.

[muscleman]

http://www.foxbusiness.com/news/2013/05/06/assured-guaranty-to-receive-at-least-358-million-in-rmbs-settlement-with-ubs/

UBS reached settlement with AGO. I couldn't find the % of losses. Probably also 67 cents on the dollar?

[jay21]

Any people looking at RMBS wrapped by the financial guarantors?  What are your pricing assumptions?  Is the risk/reward better than the common in your opinion?

[muscleman]

Any people looking at RMBS wrapped by the financial guarantors?  What are your pricing assumptions?  Is the risk/reward better than the common in your opinion?

 

According to AGO, they look at all RMBS insured by them everyday, and if there is value buying back them, they buy back them.

They said this created decent value in the past two years, but recently the spread has narrowed and there is no longer such buyback opportunities.

You can't possibly understand these RMBS better than AGO itself, so I think the best bet is to buy AGO instead of fighting for a bargain with AGO

[jay21]

Any people looking at RMBS wrapped by the financial guarantors?  What are your pricing assumptions?  Is the risk/reward better than the common in your opinion?

 

According to AGO, they look at all RMBS insured by them everyday, and if there is value buying back them, they buy back them.

They said this created decent value in the past two years, but recently the spread has narrowed and there is no longer such buyback opportunities.

You can't possibly understand these RMBS better than AGO itself, so I think the best bet is to buy AGO instead of fighting for a bargain with AGO

 

There is a lot of clarity that AGO is good money as opposed to Ambac and MBIA where people are giving little to no credit. Two years ago RMBS were being priced at double digit yields with no credit given to most wraps so AGO definitely created a lot of value if they bought back a lot of the last few years.  My question was more on MBIA and Ambac where there is less clarity and more uncertainty on the value of their guarantees.

[muscleman]

Any people looking at RMBS wrapped by the financial guarantors?  What are your pricing assumptions?  Is the risk/reward better than the common in your opinion?

 

According to AGO, they look at all RMBS insured by them everyday, and if there is value buying back them, they buy back them.

They said this created decent value in the past two years, but recently the spread has narrowed and there is no longer such buyback opportunities.

You can't possibly understand these RMBS better than AGO itself, so I think the best bet is to buy AGO instead of fighting for a bargain with AGO

 

There is a lot of clarity that AGO is good money as opposed to Ambac and MBIA where people are giving little to no credit. Two years ago RMBS were being priced at double digit yields with no credit given to most wraps so AGO definitely created a lot of value if they bought back a lot of the last few years.  My question was more on MBIA and Ambac where there is less clarity and more uncertainty on the value of their guarantees.

 

 

It could be an opportunity, but it is just out of my competence to understand. I guess any RMBS depends on the litigation outcome of MBIA vs BAC. If MBIA goes into bankruptcy, the RMBS prices would go down a lot because the CDS on it will likely become worthless, so the buying opportunity, if any, is more likely to exist only by then.

[HJ]

These things have been priced with little regard to the value of insurance for quite a while by now. 

[willie2013]

MBI is currently $10.18 and the 8/17/2012 $10 calls just traded at  $2.47.  Everyone is  unable to time the B of A/MBI settlement and a covered call approach here, puts you in MBI at less than $8 with the chance to make roughly 20% in 103 days.  What am I missing?

[ERICOPOLY]

MBI is currently $10.18 and the 8/17/2012 $10 calls just traded at  $2.47.  Everyone is  unable to time the B of A/MBI settlement and a covered call approach here, puts you in MBI at less than $8 with the chance to make roughly 20% in 103 days.  What am I missing?

 

 

It's not a 20% gain. 

 

It's a 32% gain if the shares trade above $10 at expiry in August.

 

You are risking $7.71 of your own money ($10.17 - $2.47).

 

You stand to gain a maximum total of $2.47.

 

$2.47 is 32% of $7.71

 

(apologies for the nit picking)