After releasing a disappointing earnings statement on Monday, MBIA Corp. executives Tuesday said the bond insurer is confident its business would rebound as the broader economy recovers from the worst financial crisis in seven decades.
They also say they hope the central litigation issue surrounding the creation of the company’s new municipal finance guarantor, which is keeping it from writing new business, will be resolved “in the first half of 2010.”
The Armonk, N.Y.-based company reported a net loss to common shareholders of $727.8 million from July to September, or $3.50 per share. Forecasters were expecting a loss of just 70 cents per share.
In its preferred accounting measure, the company’s adjusted book value fell by $1.01 per share to $39.05. The adjusted book value is a present-value measure reflecting adjustments for assets and liabilities that are expected to affect equity in future periods. MBIA prefers the measure because it provides an indication of the company’s value “in the absence of any new business activity.”
C. Edward Chaplin, president and chief financial officer of MBIA, said in a conference call yesterday that the company’s third-quarter results were attributable to “loss reserves and impairments in our insurance portfolios, and realized losses on investment assets, partially offset by all other sources of income and gains on debt buyback.”
It remains uncertain when National Public Finance Guarantee Corp., the company’s municipal bond insurance arm, will be able to enter the market.
MBIA secured a permit to facilitate the creation of National from the New York State Insurance Department last February, but a number of banks and hedge funds challenged the decision of former superintendant Eric Dinallo in a series of lawsuits that claim the split advantaged public finance policyholders at the expense of structured finance policyholders.
“The system of law is set up so that regulatory decisions can be challenged, but they can only be challenged if they are clearly based on an 'arbitrary and capricious’ process,” Chaplin said.
He added that setting a timeframe for when multiple lawsuits might conclude is difficult, but he hoped that resolving the case filed in June against Dinallo’s decision, which he considers critical, would be expeditious. “It’s our hope that it’s in the first half of 2010,” he said.
If that decision is upheld by the state court in New York, Chaplin said it would speed along the remaining three lawsuits filed by other financial firms.
National’s adjusted book value was $20.05 per share as of Sept. 30, representing slightly more than half of MBIA’s total value. The entity has statutory capital, surplus, and contingency reserves totaling $1.9 billion, and claims-paying resources of $5.5 billion.
The biggest source of volatility for MBIA has been from second-lien residential mortgage-backed securities, which make up 8.5% of the company’s total insured portfolio. To date the insurer has incurred $2.2 billion of losses from RMBS.
The insurer believes it will owe about $184 million more than expected on such loans. As a result, it has transferred servicing on 10 second-lien transactions, comprising about $3.7 billion of illiquid mortgages, to a new servicer.
So while potential volatility is expected to “be about the same” in the current quarter, MBIA said it expects to have fewer liabilities.
“While we still cannot predict the path of this recession, we believe that the potential future volatility in our housing-related exposures may be moderating and our companies are emerging with their balance sheets and human resources sufficiently strong,” Chaplin said.
He added: “We’re not out of the woods at this point, but at least we have a better appreciation of the total area of the woods that we’re in.”
MBIA’s stock fell 26.7%, or $1.28, yesterday to $3.52.