MBIA Inc.’s chief executive officer said Wednesday that it is only a matter of time before the troubled bond insurer is reimbursed by financial institutions for its losses related to residential mortgage-backed securities that it insured during the housing boom.
Chief executive Joseph Brown said during an earnings call with investors that while there was no direct impact on MBIA from April’s $1.1 billion settlement between bond insurer Assured Guaranty and Bank of America, the deal is an encouraging sign. The settlement is the biggest “put-back” to date in which a financial institution agreed to compensate an insurer for losses related to RMBS.
MBIA on Tuesday reported an adjusted pre-tax income of $25 million, compared to an adjusted pre-tax loss of $90 million this time last year. The shares sank 4.39% to $9.59 in Wednesday’s session and are down over 20% year-to-date.
MBIA has been involved in litigation seeking put-backs from banks for over two years. Since September 2008, it has filed lawsuits against a half dozen financial institutions for which it insured RMBS. All lawsuits allege misrepresentation of loan quality and fraud.
In one of the more notable cases, against Credit Suisse, MBIA alleges the bank induced it to wrap asset-backed securities that didn’t live up to stated underwriting standards. It also maintains that instead of informing the parties to the transaction about the breaches of representations and warranties and repurchasing the loans, the bank engaged in “double-dipping by pocketing reimbursements on defaulted loans from loan originators.”
While Brown said that while the Assured-Bank of America settlement didn’t directly affect MBIA, the increased attention from regulators regarding the issues raised has buoyed the insurer’s confidence it will prevail in its pursuit of such settlements.
“We’ve come a long way from the fall of 2008 when we were among the first to pursue mortgage put-back litigation,” Brown said. He said back then there was skepticism about MBIA’s allegations, but recent settlements have undermined those doubts. “The market has clearly begun to recognize that it’s only a question of when and how much we ultimately recover,” Brown added.
MBIA chief financial officer Edward Chaplin said the company is in advanced discussions with one counterparty and that a court date has been set for sometime in 2012. “Frankly, attorneys will tell you that these type of cases typically do not go all the way through trial,” he said, adding that financial statements assume put-back settlements will come by late 2012.
MBIA’s public finance operations, conducted through National Public Finance Guarantee Corp., recorded $111 million of adjusted income in the first quarter, compared to $132 million the year before. National has not written new policies since 2008, when the financial crisis sent the bond insurance industry into a tailspin. But the insurer recognizes premiums from deals wrapped before then. NPFG earned $89 million of premiums, versus $114 million of premiums for first quarter 2010. The decline was a result of fewer debt refundings throughout the quarter, the insurer said.
In other related news, Ambac Financial Group reported a first-quarter 2011 net loss of $819.3 million, compared to a net loss of $690.1 million for the same time period in 2010, blaming an increase in losses, lower net premiums earned, and lower net investment income.
Ambac, which filed for bankruptcy in November, also saw net premiums decrease by 27% from the first quarter 2010 to $91.8 million this quarter. Net investment income decreased 39% to $71.7 million from the year before. The statutory surplus of Ambac Assurance Corp. totaled $822.2 million, down from $1 billion on Dec. 31, 2010.
