MBI - MBIA Inc.

[Kraven]

The rehabilitation thing is basically playing chicken -- someone will turn, it's just a matter of who turns first.  It's actually very strong leverage under certain circumstances. I remember a professor in law school once commenting that the easiest way to win a (rational) game of chicken is to remove your steering wheel and toss it out the window where your opponent can see.

 

Honestly, the way that I look at it is that MBIA should settle for whatever gets National their $1.7 billion intercompany loan paid back.  ShitCo is trivial compared to National.  They should settle and then spin ShitCo the hell out of the holding company.

 

This all sounds right to me.  For all his faults, Brown is a tough negotiator.  Wouldn't surprise me a bit if they put a last offer on the table.  Something like "here are the options - you give us $X or we put ShitCo into rehab and what happens happens".  Of course, make an ultimatum and you have to be willing to see it through.  They're hiring of Weil, some of the best in the business, certainly means they are serious or at least want to be perceived as serious.

[ERICOPOLY]

I find the argument relatively compelling for a settlement based on their silence as well as the other points regarding impending rehabilitation.  The silence doesn't fit the pattern of the usual mudslinging as pointed out.  So I bought back most of my peak MBI position (expressed in # of shares, not percentage of portfolio) -- trading in some BAC.

 

[valuecfa]

I find the argument relatively compelling for a settlement based on their silence as well as the other points regarding impending rehabilitation.  The silence doesn't fit the pattern of the usual mudslinging as pointed out.  So I bought back most of my peak MBI position (expressed in # of shares, not percentage of portfolio) -- trading in some BAC.

 

I was wondering why we were green today

[muscleman]

I find the argument relatively compelling for a settlement based on their silence as well as the other points regarding impending rehabilitation.  The silence doesn't fit the pattern of the usual mudslinging as pointed out.  So I bought back most of my peak MBI position (expressed in # of shares, not percentage of portfolio) -- trading in some BAC.

 

I was evaluating this too, but haven't pulled the trigger.

The fact that MBI is trading at 40% of adjusted book value makes me feel like it is too expensive. AGO is trading at the same discount but most of the legal uncertainty has been removed.

If MBI trades at a much higher discount, I would be more interested.

If you invest in MBI just for the event, do you think call options would be better?

[ERICOPOLY]

I find the argument relatively compelling for a settlement based on their silence as well as the other points regarding impending rehabilitation.  The silence doesn't fit the pattern of the usual mudslinging as pointed out.  So I bought back most of my peak MBI position (expressed in # of shares, not percentage of portfolio) -- trading in some BAC.

 

I was evaluating this too, but haven't pulled the trigger.

The fact that MBI is trading at 40% of adjusted book value makes me feel like it is too expensive. AGO is trading at the same discount but most of the legal uncertainty has been removed.

If MBI trades at a much higher discount, I would be more interested.

If you invest in MBI just for the event, do you think call options would be better?

 

I didn't want to purchase the MBI calls.  Rather, I have been writing MBI $17 strike covered calls and BAC $17 strike covered calls as a means of financing my puts.  Either stock could be higher at expiry, so be it.

 

 

[merkhet]

I find the argument relatively compelling for a settlement based on their silence as well as the other points regarding impending rehabilitation.  The silence doesn't fit the pattern of the usual mudslinging as pointed out.  So I bought back most of my peak MBI position (expressed in # of shares, not percentage of portfolio) -- trading in some BAC.

 

I'd love to see a settlement before their conference call on May 9th.

[stahleyp]

I find the argument relatively compelling for a settlement based on their silence as well as the other points regarding impending rehabilitation.  The silence doesn't fit the pattern of the usual mudslinging as pointed out.  So I bought back most of my peak MBI position (expressed in # of shares, not percentage of portfolio) -- trading in some BAC.

 

I was wondering why we were green today

 

hahaha. I'm actually "laughing out loud"  ;D

[merkhet]

http://finance.yahoo.com/news/ny-state-may-soon-seize-114103187.html

 

---

 

New York state regulators are poised, within “weeks or perhaps days," to seize the MBIA Insurance Corp.'s money-losing mortgage insurance unit because it is running out of cash, sources say, reports the New York Post. Benjamin Lawsky, the superintendent of the state’s Department of Financial Services, MBIA’s regulator, is interviewing advisers to help it seize the business, another source said.

[Cardboard]

What is new here? Again, it is the NY Post posting a negative article on an unknown company to the public and their readers or MBIA. It was similar with Fairfax. What is the intention to keep repeating the same point?

 

Cardboard

[PlanMaestro]

What is new here? Again, it is the NY Post posting a negative article on an unknown company to the public and their readers or MBIA. It was similar with Fairfax. What is the intention to keep repeating the same point?

 

Cardboard

 

Well, it's the Post so it might well not have any source. However, the last "leak" was confirmed by the WSJ a day later, along the same lines.

 

To the hypothesis that it is BofA or some short… I think it is much more probable that it is coming from Lawsky's office. In particular, this looks like putting the screws to me.

 

Ironically, Lawsky, if he seizes MBIA Insurance, might have more flexibility to to reach a settlement with BofA, the source said.

 

And what about this.

 

“Ordinarily, he would have done this already,” a source said. But legally Lawsky needs to take over an insurer only when he believes it is insolvent, the source added.

[muscleman]

What is new here? Again, it is the NY Post posting a negative article on an unknown company to the public and their readers or MBIA. It was similar with Fairfax. What is the intention to keep repeating the same point?

 

Cardboard

 

Well, it's the Post so it might well not have any source. However, the last "leak" was confirmed by the WSJ a day later, along the same lines.

 

To the hypothesis that it is BofA or some short… I think it is much more probable that it is coming from Lawsky's office. In particular, this looks like putting the screws to me.

 

Ironically, Lawsky, if he seizes MBIA Insurance, might have more flexibility to to reach a settlement with BofA, the source said.

 

And what about this.

 

“Ordinarily, he would have done this already,” a source said. But legally Lawsky needs to take over an insurer only when he believes it is insolvent, the source added.

 

Forcing MBIA Corp into rehab will probably facilitate the settlement, but probably in favor of BAC instead of MBIA.

[merkhet]

 

“Ordinarily, he would have done this already,” a source said. But legally Lawsky needs to take over an insurer only when he believes it is insolvent, the source added.

 

 

I have no idea -- they can't take over an insurer w/o the insurer being insolvent...

[MYDemaray]

Forcing MBIA Corp into rehab will probably facilitate the settlement, but probably in favor of BAC instead of MBIA.

 

On the flip side, probably unlikely BAC gets anything back on CDS....maybe BAC figures that the case either way so better to have Lawsky on other side of table

[Kraven]

Forcing MBIA Corp into rehab will probably facilitate the settlement, but probably in favor of BAC instead of MBIA.

 

On the flip side, probably unlikely BAC gets anything back on CDS....maybe BAC figures that the case either way so better to have Lawsky on other side of table

 

I can't imagine BAC wants to exchange MBIA for Lawsky.  You go from shallow waters to someone who can theoretically go until the end of time.  Lawsky may view BAC as very deep pockets and a way to fill the well easily (relatively speaking).  I would think it's a whole new ballgame in that case and could cause BAC other types of problems that perhaps aren't clear right now.  In any case, I just don't think at this point in time where BAC is on the cusp of being back in the good graces of the public, investing community, etc they want to go mano a mano with the insurance commissioner who, if he chooses, will villify them every step of the way.  I have to believe this is all prelude to some kind of settlement.  But then again, who knows.

[JRH]

I can't imagine BAC wants to exchange MBIA for Lawsky.  You go from shallow waters to someone who can theoretically go until the end of time.  Lawsky may view BAC as very deep pockets and a way to fill the well easily (relatively speaking).  I would think it's a whole new ballgame in that case and could cause BAC other types of problems that perhaps aren't clear right now.  In any case, I just don't think at this point in time where BAC is on the cusp of being back in the good graces of the public, investing community, etc they want to go mano a mano with the insurance commissioner who, if he chooses, will villify them every step of the way.  I have to believe this is all prelude to some kind of settlement.  But then again, who knows.

 

Yeah, there are a lot of theoretical pressure points and factors affecting negotiating leverage but if I had to pick one key one I don't hear mentioned a lot, it's the effect that MBIA Corp's rehab on MBIA Inc/National's future reputation in the marketplace.  The fact that MBIA has continued to make good on their promises while others (BofA/Countrywide) have reneged is no small consideration.  Berkowitz once tossed out that MBIA might be worth X in a runoff and 2X as a going concern.  You might call that the franchise value, which could be partially impaired reputationally.  If BofA sees it that way then game theory would suggest BofA subtract some big chunk of X (2X-X) from their settlement offer.

 

Not that I know how much a municipality cares about the reputation of the bond insurer.

[Kraven]

I can't imagine BAC wants to exchange MBIA for Lawsky.  You go from shallow waters to someone who can theoretically go until the end of time.  Lawsky may view BAC as very deep pockets and a way to fill the well easily (relatively speaking).  I would think it's a whole new ballgame in that case and could cause BAC other types of problems that perhaps aren't clear right now.  In any case, I just don't think at this point in time where BAC is on the cusp of being back in the good graces of the public, investing community, etc they want to go mano a mano with the insurance commissioner who, if he chooses, will villify them every step of the way.  I have to believe this is all prelude to some kind of settlement.  But then again, who knows.

 

Yeah, there are a lot of theoretical pressure points and factors affecting negotiating leverage but if I had to pick one key one I don't hear mentioned a lot, it's the effect that MBIA Corp's rehab on MBIA Inc/National's future reputation in the marketplace.  The fact that MBIA has continued to make good on their promises while others (BofA/Countrywide) have reneged is no small consideration.  Berkowitz once tossed out that MBIA might be worth X in a runoff and 2X as a going concern.  You might call that the franchise value, which could be partially impaired reputationally.  If BofA sees it that way then game theory would suggest BofA subtract some big chunk of X (2X-X) from their settlement offer.

 

Not that I know how much a municipality cares about the reputation of the bond insurer.

 

Agreed on theoretical pressure points.  I have a hard time seeing how for a few extra bucks (again, relatively speaking) BAC wants all the old stuff rehashed.  Moynihan is out there trying to rally the troops and that kind of thing and then Lawsky will be giving interviews talking about BAC is the worst scum in the world and why oh why can't they just stop breaching every contract they enter.

 

No one gives a crap about who the insurer is in a securities deal except in 2 ways.  One, if the insurer is so tainted that it will reflect badly on the issuer by just being associated with them.  I personally don't think that is the case with MBIA.  I think as far as the public is concerned, especially muni investors, MBIA is no better or worse than any other financial company.  The second way, which can in some cases be related to the first, is as it affects pricing.  If one insurer will lead to better pricing than another, then in most cases that's the one that will get the gig.  Sometimes investors have buckets on how much exposure they can have to any one entity (and with wrapped securities the credit risk is the insurer), so that can play in to the mix too.  MBIA being back in the biz really only is a good thing in general for muni investors.  Assuming they can do the job, no one will care and likely pricing will be just fine.

[JRH]

No one gives a crap about insurers in a securities deal except in 2 ways.  One, if the insurer is so tainted that it will reflect badly on the issuer by just being associated with them.  I personally don't think that is the case with MBIA.  I think as far as the public is concerned, especially muni investors, MBIA is no better or worse than any other financial company.  The second way, which can in some cases be related to the first, is as it affects pricing.  If one insurer will lead to better pricing than another, then in most cases that's the one that will get the gig.  Sometimes investors have buckets on how much exposure they can have to any one entity (and with wrapped securities the credit risk is the insurer), so that can play in to the mix too.  MBIA being back in the biz really only is a good thing in general for muni investors.  Assuming they can do the job, no one will care and likely pricing will be just fine.

 

Thanks, I appreciate the perspective from someone who knows better than what I get playing imaginary scenarios out in my head! :)

[MYDemaray]

I can't imagine BAC wants to exchange MBIA for Lawsky.  You go from shallow waters to someone who can theoretically go until the end of time. 

 

Don't you think Lawsky and MBIA have separate aims in settlement negotiations?  I would imagine MBIA would seek to maximize recovery whereas Lawsky would seek to maximize reputation (in an opportune fashion ...e.g., ahead of any career moves)... Maybe I'm being simplistic, but I think Lawsky benefits more from achieving a settlement as a notch on his belt, and doing it under his tenure quickly, and less from what that settlement figure actually is....because his audience is the general public, and not MBIA shareholders.  In any case, I think that any settlement that exceeds the inter-company loan for MBIA is a win.  Lawsky expediting matters, in my mind, is a good thing, even if he's not technically getting the figure Brown would hope.  Let's face it, any excess recovery from BAC is just going right back out the door to policy holders.

[willie2013]

MBIA announces settlement:

 

http://online.wsj.com/article/PR-CO-20130502-916029.html?mod=googlenews_wsj

[merkhet]

MBIA announces settlement:

 

http://online.wsj.com/article/PR-CO-20130502-916029.html?mod=googlenews_wsj

 

Okay, that's a bit of a tease -- this settlement is w/ Flagstar & not BAC...

 

"We are pleased to have reached a settlement with Flagstar that brings an end to our litigation without further delay and expense and results in cash and other consideration to MBIA Insurance Corp. in an amount consistent with our recovery expectations," said Jay Brown, MBIA CEO. "We will continue to focus on resolving our remaining litigation with other parties so that National Public Finance Guarantee Corp., our U.S. muni-only insurer, can resume its role as a leader in the U.S. public finance insurance market."

 

^ basically the only thing that matters right now.

[Hoodlum]

MBIA had about $165M in losses related to Flagstar and settled for $110M.  Anyone remember what was expected.  Can this payout in any way reflect what MBIA is asking from BAC?  I believe MBIA had about $4B in losses related to Countrywide.

 

[merkhet]

"Under the terms of the Settlement Agreement, MBIA Corp. will terminate its pending lawsuit against Flagstar and in exchange will receive $110.0 million in cash and other consideration. MBIA Corp. will use the cash received to repay a portion of its secured loan from National Public Finance Guarantee Corp. in accordance with its terms."

 

I guess there are two ways to read this -- (1) they are sending it all to National or (2) they are sending a portion of it to National.  I'm hoping it's the former and MBIA doesn't view this as a lifeline to continue the BAC litigation and/or stave off rehabilitation.

[Kraven]

I can't imagine BAC wants to exchange MBIA for Lawsky.  You go from shallow waters to someone who can theoretically go until the end of time. 

 

Don't you think Lawsky and MBIA have separate aims in settlement negotiations?  I would imagine MBIA would seek to maximize recovery whereas Lawsky would seek to maximize reputation (in an opportune fashion ...e.g., ahead of any career moves)... Maybe I'm being simplistic, but I think Lawsky benefits more from achieving a settlement as a notch on his belt, and doing it under his tenure quickly, and less from what that settlement figure actually is....because his audience is the general public, and not MBIA shareholders.  In any case, I think that any settlement that exceeds the inter-company loan for MBIA is a win.  Lawsky expediting matters, in my mind, is a good thing, even if he's not technically getting the figure Brown would hope.  Let's face it, any excess recovery from BAC is just going right back out the door to policy holders.

 

All fair points. I do think that regardless of what Lawsky's goals are he can get a lot of points in the arena of public perception by railing on BAC. It's easy and "everyone" hates BAC so he doesn't offend anyone he cares about. It could still cause problems for BAC that they don't want to deal with.

[zippy1]

"Under the terms of the Settlement Agreement, MBIA Corp. will terminate its pending lawsuit against Flagstar and in exchange will receive $110.0 million in cash and other consideration. MBIA Corp. will use the cash received to repay a portion of its secured loan from National Public Finance Guarantee Corp. in accordance with its terms."

 

I guess there are two ways to read this -- (1) they are sending it all to National or (2) they are sending a portion of it to National.  I'm hoping it's the former and MBIA doesn't view this as a lifeline to continue the BAC litigation and/or stave off rehabilitation.

 

From the earlier discussion, it seems that MBI is using rehabilitation of the structured finance part as leverage. If this is the case, I would think they meant the fromer.

 

Also, I wonder whether this settlement is meant to set a "reference" price for settlement with BAC and at the same time shows the regulators that MBI is negotiating in good faith.

[JRH]

"Under the terms of the Settlement Agreement, MBIA Corp. will terminate its pending lawsuit against Flagstar and in exchange will receive $110.0 million in cash and other consideration. MBIA Corp. will use the cash received to repay a portion of its secured loan from National Public Finance Guarantee Corp. in accordance with its terms."

 

I guess there are two ways to read this -- (1) they are sending it all to National or (2) they are sending a portion of it to National.  I'm hoping it's the former and MBIA doesn't view this as a lifeline to continue the BAC litigation and/or stave off rehabilitation.

 

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