MBI - MBIA Inc.

[ShahKhezri]

Kraven,

 

ran into this nugget in the latest asset backed alert, what do you think?

 

Credit Suisse’s latest jumbo-mortgage securitization contained issuer protections that the bank has hailed as precedent-setting, but that others are viewing with skepticism.

 

At issue is a “sunset provision” built into the representations and warranties covering the $329.9 million transaction’s underlying loans. The language stipulates that investors only have three years to request that the bank buy back accounts that fail to meet stated underwriting standards or sue over breaches — even in instances of fraud.

 

In the past so-called reps and warrants always have extended at least for the life of a mortgage-bond transaction. Indeed, the individual loans backing Credit Suisse’s bonds were written according to such standards. But the bank’s securitization covenants supersede those measures as far as investors are concerned.

 

 

[Kraven]

Kraven,

 

ran into this nugget in the latest asset backed alert, what do you think?

 

Credit Suisse’s latest jumbo-mortgage securitization contained issuer protections that the bank has hailed as precedent-setting, but that others are viewing with skepticism.

 

At issue is a “sunset provision” built into the representations and warranties covering the $329.9 million transaction’s underlying loans. The language stipulates that investors only have three years to request that the bank buy back accounts that fail to meet stated underwriting standards or sue over breaches — even in instances of fraud.

 

In the past so-called reps and warrants always have extended at least for the life of a mortgage-bond transaction. Indeed, the individual loans backing Credit Suisse’s bonds were written according to such standards. But the bank’s securitization covenants supersede those measures as far as investors are concerned.

 

I used to love Asset Backed Alert.  A great mix of info and gossip.  This is interesting and I can see why CS would want to do it.  I am somewhat surprised it's labelled "issuer protection".  More like investment bank protection.  I can see why a seller of loans would want some certainty in their dealings.  Viewing things at a 100,000 foot level, one can think of R&W sort of like a warranty.  That is, if something isn't the way we said it is, you can return it.  There is a point where it doesn't strike me as awful to say, ok, a certain amount of time has passed and the entire risk of ownership is now yours.  That being said, I would be surprised if they get too much traction with this.  Seems as if they got it done, but I'm surprised investors didn't balk.  I wonder if they saw it.  It would have been disclosed, but a mention in a risk factor and a mention in the back of the book when you're looking at 100-200 pages might have been missed.  I imagine some guys on the buyside were pissy when they saw this and made some angry calls.  What do you think?

[muscleman]

"Anyone would take an aggressive, defensive posture if every Tom, Dick and Harry wanted you to fund all of their mistakes.  Especially if you are now doing well, while they are doing shitty.  I hope BAC pulls out every trick in the book to get plaintiffs to settle at the precedents set in other settlements."

 

The thing is that I don't think they are offering a similar settlement to MBI. If they were, they could put a lot more pressure on them by simply making a few public statements than doing this bond thing which looks like justice interference and as some have mentioned, will impact their reputation in some ways. It is like a rich husband fighting his wife in court over who is going to take care of the childrens while bringing up all kinds of frivolous cases to bleed her to death to not continue her case. That is not my definition of justice. If Moynihan was simply saying that they offered similar terms as to what has been offered to other muni insurers, Berkowitz and other investors would take care of reasoning Brown.

 

Also in that case, I think it would be smart for BAC to offer a little more than what was paid to others. The case in court is simply much further down the road and every indication points to a victory for MBI. We should know early next year which means that MBI has all the financial means to wait for the judgement. MBI also knows that BAC would likely appeal a negative verdict so they will have to move from trying to extract every penny from that case to putting the company back into growth mode. 3 more years or so is a very long time in business and even if the verdict was upheld and MBI was entitled to more interest as compensation it is likely not worth it.

 

Cardboard

 

If the judge rules and bac appeals, does bac have to pay that few billions now, or it does not have to pay until it loses the appeal?

Mbi does not seem to have liquidity to run three more years.

[A_Hamilton]

"Anyone would take an aggressive, defensive posture if every Tom, Dick and Harry wanted you to fund all of their mistakes.  Especially if you are now doing well, while they are doing shitty.  I hope BAC pulls out every trick in the book to get plaintiffs to settle at the precedents set in other settlements."

 

The thing is that I don't think they are offering a similar settlement to MBI. If they were, they could put a lot more pressure on them by simply making a few public statements than doing this bond thing which looks like justice interference and as some have mentioned, will impact their reputation in some ways. It is like a rich husband fighting his wife in court over who is going to take care of the childrens while bringing up all kinds of frivolous cases to bleed her to death to not continue her case. That is not my definition of justice. If Moynihan was simply saying that they offered similar terms as to what has been offered to other muni insurers, Berkowitz and other investors would take care of reasoning Brown.

 

Also in that case, I think it would be smart for BAC to offer a little more than what was paid to others. The case in court is simply much further down the road and every indication points to a victory for MBI. We should know early next year which means that MBI has all the financial means to wait for the judgement. MBI also knows that BAC would likely appeal a negative verdict so they will have to move from trying to extract every penny from that case to putting the company back into growth mode. 3 more years or so is a very long time in business and even if the verdict was upheld and MBI was entitled to more interest as compensation it is likely not worth it.

 

Cardboard

 

If the judge rules and bac appeals, does bac have to pay that few billions now, or it does not have to pay until it loses the appeal?

Mbi does not seem to have liquidity to run three more years.

 

Money goes into a collateral account until it is resolved.

[JRH]

Not a joke, although maybe it should be: I get heartburn just following this whole ordeal, much less having a little money in MBIA (it doesn't bother me to have even lots of money in BOA).  I've literally taken the heartburn as a buy signal on more than one occasion, and it has worked out so far.  It was close today, but not quite severe enough. ;)

[muscleman]

Not a joke, although maybe it should be: I get heartburn just following this whole ordeal, much less having a little money in MBIA (it doesn't bother me to have even lots of money in BOA).  I've literally taken the heartburn as a buy signal on more than one occasion, and it has worked out so far.  It was close today, but not quite severe enough. ;)

 

The top of a bull market ends when every short seller has lost heart and closed out.

Same for bear market. ;D

What's your percentage into this beast so far?

I am curious why Bruce Birkwitz only put in 5% so far. He mentioned that mbi is his best idea

[west]

The top of a bull market ends when every short seller has lost heart and closed out.

Same for bear market. ;D

What's your percentage into this beast so far?

I am curious why Bruce Birkwitz only put in 5% so far. He mentioned that mbi is his best idea

 

If you're talking about FAIRX, it's because, I believe, the fund's too big.  In FAAFX, his smaller fund, it's somewhere around 30%.

[muscleman]

"Anyone would take an aggressive, defensive posture if every Tom, Dick and Harry wanted you to fund all of their mistakes.  Especially if you are now doing well, while they are doing shitty.  I hope BAC pulls out every trick in the book to get plaintiffs to settle at the precedents set in other settlements."

 

The thing is that I don't think they are offering a similar settlement to MBI. If they were, they could put a lot more pressure on them by simply making a few public statements than doing this bond thing which looks like justice interference and as some have mentioned, will impact their reputation in some ways. It is like a rich husband fighting his wife in court over who is going to take care of the childrens while bringing up all kinds of frivolous cases to bleed her to death to not continue her case. That is not my definition of justice. If Moynihan was simply saying that they offered similar terms as to what has been offered to other muni insurers, Berkowitz and other investors would take care of reasoning Brown.

 

Also in that case, I think it would be smart for BAC to offer a little more than what was paid to others. The case in court is simply much further down the road and every indication points to a victory for MBI. We should know early next year which means that MBI has all the financial means to wait for the judgement. MBI also knows that BAC would likely appeal a negative verdict so they will have to move from trying to extract every penny from that case to putting the company back into growth mode. 3 more years or so is a very long time in business and even if the verdict was upheld and MBI was entitled to more interest as compensation it is likely not worth it.

 

Cardboard

 

If the judge rules and bac appeals, does bac have to pay that few billions now, or it does not have to pay until it loses the appeal?

Mbi does not seem to have liquidity to run three more years.

 

Money goes into a collateral account until it is resolved.

 

I see. So MBI has to find liquidity to survive those appeal periods unless it can settle with BAC.

[ERICOPOLY]

I am curious why Bruce Birkwitz only put in 5% so far. He mentioned that mbi is his best idea

 

He said that two years ago -- unless there has been a more recent affirmation.

 

Last year he told Consuelo Mack that BAC was the best bet.

 

This year?  I don't know what he has said lately.

[muscleman]

I am curious why Bruce Birkwitz only put in 5% so far. He mentioned that mbi is his best idea

 

He said that two years ago -- unless there has been a more recent affirmation.

 

Last year he told Consuelo Mack that BAC was the best bet.

 

This year?  I don't know what he has said lately.

 

No. There is no recent affirmation.

[valuecfa]

Has anyone yet read the summary judgement motions? Boy they are lengthy. i only had time this evening to scan them both, and even that has taken about 4 hours.

[muscleman]

Has anyone yet read the summary judgement motions? Boy they are lengthy. i only had time this evening to scan them both, and even that has taken about 4 hours.

 

How likely do you think that the judge will rule based on that, given both parties requested summary judgement? Or do you think further arguments and hearings will be arranged?

[JRH]

The top of a bull market ends when every short seller has lost heart and closed out.

Same for bear market. ;D

What's your percentage into this beast so far?

I am curious why Bruce Birkwitz only put in 5% so far. He mentioned that mbi is his best idea

 

I doubled my position when BOA announced the blocking solicitation and the price fell.  That took me from 5% a few days before to about 8%.  I only have three positions at the moment and it's the smallest.

 

In three appearances on WealthTrack, he's given MBIA, BAC, and AIG as his "best ideas".  I'd assume part of that is just adding variety to the show.  If it wasn't his best idea any more, why would it still be 35% of FOCIX and 30% of FAAFX?

[Kraven]

Has anyone yet read the summary judgement motions? Boy they are lengthy. i only had time this evening to scan them both, and even that has taken about 4 hours.

 

At some level, I find it to be a waste of time.  Both parties put their very best foot forward.  I don't think at this point there is much at a macro level that we don't already know.  I did look at the slide presentation a little and kind of gave up after a few.  Maybe I'll take another look at some point.

 

I happen to believe that MBIA has the better argument, but one never knows what a court will do.  We also don't know that MBIA won't get cold feet and suddenly accept a less than optimal settlement.  Given the relative resources of both parties never count BAC out in this one.  If someone put a gun to my head and told me I have to say who will come out of this in better shape, I'd have to say MBIA, but there is no gun to my head and even if there was sometimes a gun goes off.

[valuecfa]

Has anyone yet read the summary judgement motions? Boy they are lengthy. i only had time this evening to scan them both, and even that has taken about 4 hours.

 

At some level, I find it to be a waste of time.  Both parties put their very best foot forward.  I don't think at this point there is much at a macro level that we don't already know.  I did look at the slide presentation a little and kind of gave up after a few.  Maybe I'll take another look at some point.

 

I happen to believe that MBIA has the better argument, but one never knows what a court will do.  We also don't know that MBIA won't get cold feet and suddenly accept a less than optimal settlement.  Given the relative resources of both parties never count BAC out in this one.  If someone put a gun to my head and told me I have to say who will come out of this in better shape, I'd have to say MBIA, but there is no gun to my head and even if there was sometimes a gun goes off.

 

I'm pretty certain mbia will win at trial if it gets that far. I don't think the judge will grant summary judgement to either party's benefit....certainly not BACs.

[Kraven]

 

I'm pretty certain mbia will win at trial if it gets that far. I don't think the judge will grant summary judgement to either party's benefit....certainly not BACs.

 

Agreed.  I can't imagine either party wins a summary judgment motion.  To win it must be decided by the judge that there are no issues to be resolved, that a trial would be a waste of time as it's obvious.  There are certainly real issues here.

[muscleman]

Has anyone yet read the summary judgement motions? Boy they are lengthy. i only had time this evening to scan them both, and even that has taken about 4 hours.

 

At some level, I find it to be a waste of time.  Both parties put their very best foot forward.  I don't think at this point there is much at a macro level that we don't already know.  I did look at the slide presentation a little and kind of gave up after a few.  Maybe I'll take another look at some point.

 

I happen to believe that MBIA has the better argument, but one never knows what a court will do.  We also don't know that MBIA won't get cold feet and suddenly accept a less than optimal settlement.  Given the relative resources of both parties never count BAC out in this one.  If someone put a gun to my head and told me I have to say who will come out of this in better shape, I'd have to say MBIA, but there is no gun to my head and even if there was sometimes a gun goes off.

 

Yes. If the summary judgement cannot be ruled, then it is a waste of time.

When is the trial?

They submitted the summary judgement motion in November, and they presented that recently, so probably a waste of one month? Does this delay the trial date?

 

In January, the AGO vs FlagStar trial is expected to rule, and may have some impact on MBI vs BAC.

[muscleman]

The top of a bull market ends when every short seller has lost heart and closed out.

Same for bear market. ;D

What's your percentage into this beast so far?

I am curious why Bruce Birkwitz only put in 5% so far. He mentioned that mbi is his best idea

 

I doubled my position when BOA announced the blocking solicitation and the price fell.  That took me from 5% a few days before to about 8%.  I only have three positions at the moment and it's the smallest.

 

In three appearances on WealthTrack, he's given MBIA, BAC, and AIG as his "best ideas".  I'd assume part of that is just adding variety to the show.  If it wasn't his best idea any more, why would it still be 35% of FOCIX and 30% of FAAFX?

 

http://portfolios.morningstar.com/fund/holdings?t=FAAFX&region=USA&culture=en-us

From here, it shows that MBIA is the single largest holding of this fund. In history, has Bruce occured eventual loses on large bets like this? If this one fails, the fund will be down 30%, and investors will be pissed off and ask for money back.

[muscleman]

No one is interested in the strategy of buying both AGO and MBI? I am thinking that maybe this has the better risk/reward than a pure play in MBI.

[Kraven]

Has anyone yet read the summary judgement motions? Boy they are lengthy. i only had time this evening to scan them both, and even that has taken about 4 hours.

 

At some level, I find it to be a waste of time.  Both parties put their very best foot forward.  I don't think at this point there is much at a macro level that we don't already know.  I did look at the slide presentation a little and kind of gave up after a few.  Maybe I'll take another look at some point.

 

I happen to believe that MBIA has the better argument, but one never knows what a court will do.  We also don't know that MBIA won't get cold feet and suddenly accept a less than optimal settlement.  Given the relative resources of both parties never count BAC out in this one.  If someone put a gun to my head and told me I have to say who will come out of this in better shape, I'd have to say MBIA, but there is no gun to my head and even if there was sometimes a gun goes off.

 

Yes. If the summary judgement cannot be ruled, then it is a waste of time.

When is the trial?

They submitted the summary judgement motion in November, and they presented that recently, so probably a waste of one month? Does this delay the trial date?

 

In January, the AGO vs FlagStar trial is expected to rule, and may have some impact on MBI vs BAC.

 

I was referring to reading the motions as a waste of time, not whether or not there is a ruling.

[valuecfa]

MBIA finally files an 8-k:

 

http://www.sec.gov/Archives/edgar/data/814585/000115752312006394/a50510544.htm

 

and some good commentary on putback litigation progress:

 

http://www.subprimeshakeout.com/2012/12/five-signs-plaintiffs-winning-rmbs-war.html

[PlanMaestro]

MBIA’s Presentation on Countrywide's Fraud

http://www.ritholtz.com/blog/2012/12/mbias-presentation-on-countrywides-fraud/

[valuecfa]

MBIA’s Presentation on Countrywide's Fraud

http://www.ritholtz.com/blog/2012/12/mbias-presentation-on-countrywides-fraud/

 

Plan,

 

MBIA's legal proceedings page has both of the slides for MBIA's motion and opposition for SJ (and the transcripts for each party's motion for SJ):

 

http://www.mbia.com/investor/legal_proceedings.html

[muscleman]

It just occured to me that after the bond solicitation, National's adjusted book value dropped from $25 to something like $18 after taking on those 900 Million bonds. Am I right?

It is still a good value, but just a reminder to folks about this.

[muscleman]

It looks like everyone tracks intensely on the legal matters.

Can anyone please tell me something about the liquidity issues?

After the bond repurchase, MBIA's liquidity position is worse. I think it has only about $150 Million liquidity in the structured finance division, right?