MBI - MBIA Inc.

[alertmeipp]

I am thinking this will end up with a global settlement - banks want to put this headline behind them for sure. The little guys could be taken care easily. Looks promising.

[Rabbitisrich]

Congratulations ValueCFA... this latest move appears to take out a large part of the uncertainty in the company. In fact, I'm surprised that the stock didn't move up more aggressively.

 

 

Reading the majority's decision demonstrates the huge hurdles, ex-post of course, faced by the plaintiffs. The plaintiffs had to allege specific monetary damages or to otherwise demonstrate a default in order to pursue the case, which wholly sidesteps the allegation of insolvency. If the court hearing the Article 78 suit requires the same evidence of fraudulent conveyance, then the plaintiffs are likely out of luck.

 

I thought that the minority presented a more compelling argument, and hewed more closely to the standard of giving the plaintiffs the benefit of the doubt regarding plaintiff inference of the superintendent's reliance upon company estimates.

 

Interesting case nonetheless. Are you buying more here ValueCFA?

 

[valuecfa]

It was already a fairly large position, but i did add just a few more shares at 13.50 today.

 

I'm still holding my shares though, so its a bit early to claim victory. They still have a few more hurdles to clear before the full value becomes realized.

[valuecfa]

Attorney representing MBIA explains where the company stands on its litigation front regarding the transformation

 

http://www.youtube.com/watch?v=bSqAdOZJCOk

[alertmeipp]

A very detailed explanation on the long thesis:

 

http://www.businessinsider.com/manal-mehta-mbia-presentation-2010-10#-3

 

 

[Rabbitisrich]

Attorney representing MBIA explains where the company stands on its litigation front regarding the transformation

 

http://www.youtube.com/watch?v=bSqAdOZJCOk

 

Someone removed the video.

[Rabbitisrich]

If MBI wins its suit against BofA/Countrywide, will MBI simply regain the insurance paid out + damages, or is the entire transaction reversed? Will MBI have to pay back unearned premiums on rescinded claims?

 

 

 

Thanks for the link Alertmeipp. I'm getting very tempted to open a position based upon Scenario 2 from the link, wherein MBIA Corp. goes to $0, and National is cheap on a runoff basis. Unlike Third Avenue, who noted that future policyholders will be skeptical of management character post-split, I don't think that muni buyers give a hoot about management character. All the incentives to fulfill contractual obligations are in the cash cow, which is the muni insurer. You get the going-concern value as a free option.

 

[valuecfa]

Attorney representing MBIA explains where the company stands on its litigation front regarding the transformation

 

http://www.youtube.com/watch?v=bSqAdOZJCOk

 

Someone removed the video.

 

try this one

http://www.bloomberg.com/video/65814746/

[alertmeipp]

Banks' attorney responses back:

 

http://www.bloomberg.com/news/2011-01-13/giuffra-says-banks-to-appeal-dismissal-of-mbia-lawsuit-video.html?cmpid=yhoo

 

They will appeal again. No wonder the pps is not moving much.

[Myth465]

With the selloff this is getting interesting.

 

I plan to look at this over the weekend. Seems like the perfect position for leaps. I get the basics but want additional time to review the presentation and other documentation.

 

How do you all think the Muni issue will affect them? I dont think a Muni will be allowed to fail in the long run, but the crisis may drag down MBIA. The post about them buying back bonds they insure is very interesting and does provide a degree of flexibility.

[alertmeipp]

too bad i was in already.

well, this soon will pass. the muni problem is way over blown.

[valuecfa]

too bad i was in already.

well, this soon will pass. the muni problem is way over blown.

 

March 1st should be very interesting. Their capital base will take a hit from their muni investments. Additional CMBS reserves are possible as well. There is a lot of speculation out there. My speculation is that there will be a very large commutation number for Q4, in response to the banks that have withdrawn from the transformation suit. There is also speculation that they have reached settlements on more putback recoveries. I'm not holding my breath on any remotely large putback recoveries in Q4, but it is possible. Also, anxiously awaiting results of the appeal on the plenary, and the appeal on the admittance of the full correspondence b/t NYID and MBIA. We'll have to wait to see if the judge considers them proprietary or not. Jay Brown is still debating pursuing suits on CMBS pools, which he may use as leverage for commuting more MBIA corp contracts. Muni headlines are likely to continue to be negative for a long time (problems like this don't disappear overnight), although i think the fear is overblown. Proposed recovery rates for unsecured holders on Vallejo probably spooked the muni market a bit further. Should be an interesting Q.

[valuecfa]

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NzgyOTl8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

 

page 18 of BAC's earnings presentation show that the monolines have added about $500 million in repurchase claims to BAC in the 4th Quarter. It is unknown how much of it may relate to MBIA vs other monolines.

 

Bac had this to say on the matter:

Monoline claims outstanding continue to grow as the

monolines continue to submit claims and are generally

unwilling to withdraw claims despite evidence refuting the

claims

 

This interesting NYT article is making waves today as well: http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html

[valuecfa]

By the way, in case you want to follow MBIA's cases, an easy & free way to keep up with them  both where they are a defendant and plaintiff can be found here by doing a party search:

 

http://iapps.courts.state.ny.us/webcivil/FCASSearch?param=P

[Rabbitisrich]

Thanks for the link(s).

[Rabbitisrich]

Bond Girl from Self-Evident.org consistently posts thoughtful stuff on the muni market. She has an article that explains some of the factors discouraging a "contagion" of Chapter 9 filings, and the differences between a private market bankruptcy and a Chapter 9: https://self-evident.org/?author=35

[valuecfa]

If MBI wins its suit against BofA/Countrywide, will MBI simply regain the insurance paid out + damages, or is the entire transaction reversed? Will MBI have to pay back unearned premiums on rescinded claims?

 

Rabbitisrich,

 

Instead of going loan-by-loan, MBIA will be able to use a surprisingly small sample (less than 1.6% of the total loan population in dispute) to prove incidences of breach or fraud in the entire pool. It's not at all clear how the representative statistical sample used by MBIA in the case would be applied to the overall loan population, even if it was established to be representative by the trier of fact. The contractual remedy for proving that Countrywide breached a rep and warranty with respect to a loan is the repurchase of that particular loan.  How would that remedy be applied to the overall loan population if MBIA's sample showed, for example, that 75% of loans breached at least one rep and warranty?  In other words, which loans would Countrywide be forced to repurchase, and how would the court ensure that size and the loss severity of those loans lined up with those found to be defective in the sample?  These are difficult questions to answer. It is unclear how it will be worked out. Now that MBIA has received the loan files underlying the securities at issue, it's only a matter of time before it will be able to find significant percentages of loans with (often multiple) material deficiencies.

[valuecfa]

Bond insurers get hammered as S&P proposes new methodology that would make it more difficult for the insurers to achieve a high investment grade rating. Obviously, this would be a setback for MBIA in achieving a high enough rating to be able to write insurance again sometime in the future. I'm caught off guard by the abrupt changing of S&P's methodology, however my investment thesis stays the same.

 

http://www.marketwatch.com/story/assured-guaranty-mbia-drop-on-downgrade-concern-2011-01-25-1054400?siteid=yhoof2

[Myth465]

This is getting interesting. I may have to dig in a bit over the weekend.

[valuecfa]

Interesting emails showing, uh, derogatory statements made by Bear Stearns (now JPM) employees in Ambac suit.

 

http://www.businessinsider.com/jpmorgan-bear-ambac-lawsuit-2011-1

[txlaw]

That's funny.  Dow Jones is reporting that S&P Equity Research just today raised MBIA to Hold from Sell.  ;D

 

Brilliant.

 

[alertmeipp]

Bond insurers get hammered as S&P proposes new methodology that would make it more difficult for the insurers to achieve a high investment grade rating. Obviously, this would be a setback for MBIA in achieving a high enough rating to be able to write insurance again sometime in the future. I'm caught off guard by the abrupt changing of S&P's methodology, however my investment thesis stays the same.

 

http://www.marketwatch.com/story/assured-guaranty-mbia-drop-on-downgrade-concern-2011-01-25-1054400?siteid=yhoof2

 

I hear you.  Now if the split doesn't work and S&P hits them with downgrade - it would cause them a crunch. S&P is pretty odd to change the rules all of the sudden.

[valuecfa]

Merrill Lynch wins dismissal of MBIA lawsuit

 

A New York appeals court has ruled in favor of Bank of America's (BAC) Merrill Lynch by dismissing MBIA's (MBI) lawsuit against Merrill for breach of contract, according to Bloomberg.

 

Stock rallies 4%. Go figure.

 

Assured Guaranty comments on S&P proposal via conference call:

accessed at: http://www.assuredguaranty.com/

[valuecfa]

For those still following the company...

 

MBIA Inc. recorded net income available to common shareholders of $451 million, or $2.24 per share, for the fourth quarter of 2010. This was a $311 million pretax operating loss in the fourth quarter. MBIA showed a $1.1 billion pretax unrealized net gain on the fair value of insured derivatives due to mark-to-market accounting reversals and from commuted transactions of about $16 Billion (plus another $3 Billion in Q1). They ended the quarter with an adjusted book value of $36.81 per share at December 31, 2010.  National recorded $103 million of adjusted pre-tax income in the fourth quarter of 2010. Despite positive pre-tax income, National’s book value declined in the quarter due to a $138 million unrealized loss on investments (mostly munis). As of December 31, 2010, National’s statutory capital was $2.4 billion and its claims-paying resources totaled $5.6 billion. MBIA Corp. had statutory capital of $2.7 billion and claims-paying resources totaling $5.2 billion at December 31, 2010. If the split was upheld, National was likely to receive a AA rating, however S&P is taking comments on a new proposal that may make that more difficult to achieve. The inclusion of UPR is critical, and the monolines are fighting for this. S&P is also using depressionary models, which they will likely relax.

 

In the fourth quarter, the Company increased its expectations of future losses on RMBS exposures. The Company increased its expectations of future claims payments by $458 million as early stage delinquencies in the underlying mortgage pools did not decline as anticipated during the quarter. However, this increase was partially offset by additional expected recoveries of $337 million, primarily from contractual claims related to ineligible mortgages. The Company’s estimates for expected recoveries related to “putbacks” of ineligible mortgages totaled $2.5 billion as of December 31, 2010. However, based on the Company’s assessment of the strength of its contract claims, the Company believes it is entitled to collect the full amount of its cumulative incurred losses, which totaled $4.4 billion as of December 31, 2010, from those securitization sponsors against whom it is pursuing litigation.

 

The Company reduced its estimate of economic losses on multi-sector ABS CDOs by $182 million in the fourth quarter, as previously established loss reserves and credit impairments on certain transactions commuted in the quarter exceeded the sum of cash payments made to counterparties in connection with the commutations and all other net adjustments to expected losses on such transactions.

 

In the fourth quarter of 2010, the Company estimated $604 million of incremental economic losses on certain insured transactions backed by pools of commercial mortgage-backed securities. This was what had initially spooked investors, i believe. However, this adjustment was largely driven by a view that the model needed to be modified, largely because of the fact that they were entering into and starting negotiations on different CMBS commutations. In essence, that removed the probability that we'd have zero loss.The increase was due to modest deterioration in the performance of the assets underlying these insured transactions and changes in modeling assumptions that resulted in an increase in modeled losses, even though there were relatively few property liquidations and only minor erosion in the deductibles of several pools.

 

Things are basically still pretty ugly in the MBS sectors but improving.

 

The banks are not budging on putbacks one bit thus far in the company's talks. MBIA has about $2.5 billion of recoverables booked. "So we are not recording the recovery dollar for dollar. We're taking what we believe is a pretty steep discount for those risks and recording about 57% of the contract amount to the balance sheet. I might add, Arun, that the damages that we are seeking in the litigations are well beyond the contract claims. So we're only considering, for accounting purposes, those recoveries that are clearly due under the contract and not those associated with fraud, our expenses for litigation, et cetera."

 

on the separation trial (article 78)-"There's no requirement that there be a trial in this type of case, so it's possible that the judge will simply rule on the papers, which we think are quite straightforward. But if there is a trial or hearing, it will take place probably in the third quarter and we're expecting to be completed in the year."

 

 

Not all that pretty of a quarter, except for the large reversal of the unrealized losses into gains on mark to market basis. The commutations took a lot of risk off, more will likely come. The separation trial (if needed) will occur this year, and Countrywide trial is expected to conclude this year, if there is not a negotiated settlement, which can occur at any time.

 

This was Jay Brown's presentation comments on the call for those interested:

 

When I returned to the company in 2008, I established an objective that within five years, we would transform our business into one with multiple operating platforms matching our customer bases. At this point, we are very much on track to achieve that objective.

 

The past year has had some ups and a few downs, but net-net, I'm comfortable that over the course of 2010, the degree of uncertainty about our future has dissipated on several fronts.

 

Although risk remains, let me take you through the reasons for my confidence. First, we believe that a lot of the uncertainty connected with our direct exposures to the U.S. residential housing market has diminished.

 

Our most significant losses have been associated with second-lien mortgage securitizations where the majority of the collateral was fraudulently misrepresented to us when we insured the deals. We have seen a steady decline in the pace of defaults and resulting charge-offs, which is ultimately reflected in the trend of our loss payments.

 

These payments peaked at nearly $300 million in the month of March 2009, but by year-end 2010, they were running at less than $100 million per month. And they have continued to decline in the first two months of this year. We still have sizable exposures to second-lien mortgage transaction but the trends are very promising.

 

At the same time, we continue to litigate aggressively to enforce the contractual obligation of transaction sponsors to repurchase the ineligible mortgage loans that they wrongfully included in the securitizations we insured, in breach of the representations and warranties they made. Incredibly, some of them have refused to repurchase even a single mortgage loan even though we have presented them with hundreds, or in some cases, thousands of loans that demonstrate clear evidence of ineligibility.

 

In 2010, we had several favorable court decisions that supported of our claims. One of the most important decisions allows us to use sampling as we pursue our court claims against Bank of America, despite their stated preference for lengthy, drawn-out, hand-to-hand combat over each and every ineligible loan.

 

This decision will clearly expedite the resolution of both this case and our other mortgage put-back cases against Crédit Suisse, Morgan Stanley and subsidiaries of Ally Bank in the New York courts.

 

In addition, the GSE's widely publicized settlements with Ally Bank, Bank of America and other institutions, demonstrated growing recognition of the scale of ineligible mortgage loan problem and the validity of rep and warranty claims. At this point, although I continue to be dismayed that we have had to resort to litigation, I feel very confident about the likely outcome of the put-back recovery process.

 

Our accounting reflects mortgage put-back recoveries that are deeply discounted from our actual aggregate contract claims. And I continue to believe that our ultimate recoveries will largely offset the incurred losses from this segment of our business.

 

The second reason for my confidence is the significant lessening of uncertainty associated with our ABS CDO and CDO-squared exposures. At year end, approximately $11.5 billion was left from our $36 billion gross exposure at the onset of the credit crisis, with about half of that reduction occurring in the last six months.

 

The combined ultimate loss estimate for these exposures remains unchanged versus last year end, but there's one huge difference. Our exposure to CDO-squared, which represented some of our most front-loaded estimated payment obligation, has been reduced to only $200 million at year-end 2010.

 

The CDO-squared exposure reduction of $7.2 billion since the end of 2009 resulted primarily from commutations, or rather, negotiated settlements, which I think more accurately describes these contract terminations.

 

The costs of these settlements were essentially consistent with our loss reserves and credit impairments for their respective exposures. Importantly, these are settlements that we can time when they occur and make sure that they do not put any impairments on our liquidity for more current claims. Chuck will take you through a few more details on this in his comments.

 

Third, at the end of 2009, there was widespread doom and gloom about commercial real estate performance. While we had almost no collateral erosion from the mortgages underlying our CMBS and CRE CDO portfolios at that time, the trends in the markets were poor, and several analysts were forecasting CMBS bond collateral losses well in excess of 10% in some scenarios.

 

At year-end 2010, however, many of the fundamental measures of market health are now reflecting an improving trend. Most market analysts have reduced their ultimate cumulative loss expectations considerably, and the market prices of CMBS bonds have had a robust rally during the course of the year.

 

In addition, we reduced our total commercial real estate exposure by $8 billion through negotiated settlements in the fourth quarter. We still have not experienced any significant erosion in our insured transactions with the single largest reduction and deductible being around 3% as of year end.

 

Nevertheless, our refined forecast of expected future deterioration led us to estimate ultimate incurred losses of $1.1 billion in this portfolio during 2010 and to establish reserves for this amount.

 

This loss estimate remains very sensitive to changing expectations about the future path of the economy, so while there are many positive signs in the market, I still consider the volatility around our loss estimates here to be the major risk factor for the company.

 

The fourth and fifth reasons for my confidence relate to the health of MBIA Corp. and the progress made in the transformation litigations. The separation of our insurance companies, which was approved by the New York State Insurance Department in February 2009, after an extended and thorough review, has been challenged by a small group of policyholders. Some of whom are responsible for a significant portion of the losses caused by ineligible mortgage loans in our second-lien RMBS book.

 

Despite their best efforts to bias public reporting, the PR agency retained by the bank's attorney is faced with the fact that it's becoming even more evident that the bank's claim lack factual substance. MBIA Corp. continues to be solvent and, in our view, liquid and adequately capitalized against expected losses, two years after the plaintiffs recklessly and wrongly declared MBIA Corp. insolvent.

 

Even with significant claims paid on RMBS and payments made in connection with negotiated settlements of insured credit derivative exposures, MBIA Corp. actually had a stronger liquidity position at the end of 2010 than it did at the beginning of the year. Moreover, at this point, about a third of the original claimants have dropped out of the Article 78 proceedings, and their other plenary case has been dismissed.

 

A timeline has been established for resolving the Article 78 and barring further delays, we do expect the case to be resolved in our favor this year.

 

Reason number six. National Public Finance is fully staffed and stands ready to apply for higher credit ratings and write new municipal bond insurance as soon as the Article 78 proceeding is successfully resolved.

 

Today, National is the largest U.S. public finance only municipal bond insurance company. We believe that we've put in place a very strong underwriting and risk management team, philosophy and process, reflecting our 37 years of experience in this industry.

 

As National's capital adequacy continues to grow and its exposure leverage declines quarter by quarter, the company's strength and stability will become even more evident to the market. We continue to believe that there is ample opportunity in this space and that competition will lead to increased insurance penetration and enhanced market access for many of the 50,000 different municipal issuers

 

Finally, in February of 2010, we restructured our fixed income asset management subsidiary, now known as Cutwater Asset Management, to transform it into a separate third-party asset manager.

 

In 2010, Cutwater invested in its infrastructure to support its growth plans and turned in yet another year of strong investment performance for its clients. It continues to establish new distribution channels and add nonaffiliated clients and assets.

 

So looking forward, we expect that 2011 will be shaped by three key factors. First, we'll continue to work towards additional negotiated settlements of exposures with a focus on those segments with potentially the most volatile lawsuits. To that end, we continue to have discussions with most, but not all, of our significant counter-parties. As noted in our press release, we have executed another settlement since year-end 2010, which is the evidence of this effort.

 

Secondly, there is currently a timetable established for the Article 78 proceeding that should bring it to completion during this calendar year. And third, we expect the trial of our legal action against Bank of America/Countrywide to take place in 2011. Our trials related to Ally Bank exposures should begin in early 2012, with others to follow after that.

 

In closing, I am confident that we remain well positioned and on track to meet the long-term objectives that we established for our company in 2008.

[Myth465]

Thanks was really looking for an update. This is still on my research list and I plan to get to it right after Q4 updates.