MBIA Posts Biggest Loss; Considers New Capital Plans (Update1)

MBIA Posts Biggest Loss; Considers New Capital Plans (Update1)

By Christine Richard
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Jan. 31 (Bloomberg) -- MBIA Inc., the world's largest bond insurer, posted its biggest-ever quarterly loss and said it is considering new ways to raise capital after a slump in the value of subprime-mortgage securities the company guaranteed.

The fourth-quarter net loss was $2.3 billion, or $18.61 a share, raising concern the Armonk, New York-based company will lose its Aaa rating at Moody's Investors Service. The loss came a day after FGIC Corp.'s insurance unit became the third company to be stripped of its AAA credit rating.

MBIA is seeking to convince Moody's to retain the Aaa on its insurance unit as Chief Executive Officer Gary Dunton tries to shore up capital through stock and bond sales. Without the Aaa stamp, MBIA would be unable to lend a top rating to new securities, crippling its business and throwing ratings on $652 billion of debt into doubt. The threat of losses prompted the New York State Insurance Department to call a meeting of banks last week to discuss a rescue.

``In the absence of a credible bailout plan, I think investors and issuers need to assume that MBIA, along with all of the other companies, will face continuing, worsening downgrade pressure all year,'' said Matt Fabian, a managing director at Concord, Massachusetts-based consulting firm Municipal Market Advisors.

Excluding writedowns and some other items, the operating loss was $407.8 million, or $3.30 a share, MBIA said today in a statement. The average analyst estimate from a Bloomberg survey was for a loss of $2.98.

``We are disappointed in our operating results,'' Dunton said in the statement.

CDO Expansion

Bond insurers guarantee $2.4 trillion of debt combined and are sitting on losses of as much as $41 billion, according to JPMorgan Chase & Co. analysts. Their downgrades could force banks to write down $70 billion, Oppenheimer & Co. analyst Meredith Whitney said yesterday in a report.

MBIA is reeling from an expansion out of municipal securities into guaranteeing collateralized debt obligations, which repackage assets such as mortgage bonds and buyout loans into new securities with varying risk. As the value of some CDOs plummet, ratings companies are pressing the insurers to add more capital.

Hedge fund manager William Ackman has also stepped up pressure on the companies. Ackman, a managing partner of Pershing Square Capital Management LP, released a letter to regulators yesterday estimating MBIA's CDO losses would reach $11.6 billion. Ackman has trades set up that would profit from a decline in the price of the shares and bonds of MBIA and Ambac Financial Group Inc., the second largest insurer.

Writedwowns

MBIA posted $3.4 billion of losses from marking down the value of residential and commercial mortgages as well as CDOs that it guarantees, according to the statement. MBIA also wrote off its $85.7 million investment in Channel Reinsurance Ltd., which reinsures securities guaranteed by MBIA. Moody's said Jan. 23 it may cut Channel Re's Aaa rating.

Adjusted direct premiums, a measure of new business written that doesn't adhere to generally accepted accounting principles, fell 38 percent to $262.4 million during the fourth quarter, MBIA said.

MBIA's loss compared with profit of $181 million, or $1.48 a share, reported a year earlier. MBIA, started as the Municipal Bond Insurance Association in 1974, has reported a profit every year since at least 1991, buoyed by the regular premiums from insuring municipal debt.

MBIA yesterday said New York-based private-equity firm Warburg Pincus LLC completed its purchase of $500 million of new shares, sticking to an agreement reached last month to buy the stock at $31 a share. MBIA sliced its dividend 62 percent and later sold $1 billion of notes.

Surpassing Requirements

Warburg Pincus' agreed to backstop a future share sale to help MBIA restore capital. MBIA said today it is considering this and other stock raising plans.

``We believe that these steps, along with reduced capital requirements resulting from slower business growth, will result in our capital position surpassing rating agency Triple-A requirements,'' the company said in the statement.

MBIA fell $2.02, or 13 percent, to $13.96 yesterday in New York Stock Exchange composite trading. The stock has lost more than 80 percent of its value in the past year.

Ambac reported a fourth-quarter net loss of $3.26 billion, or $31.85 a share, on Jan. 22, after writing down the value of credit-derivatives tied to subprime loans by $5.21 billion. Fitch cut the New York-based company's rating to AA from AAA this month and Ackman yesterday predicted Ambac may face $11.6 billion in losses.

As well as Ambac and FGIC's Financial Guaranty Insurance Co., Fitch earlier this month downgraded Hamilton, Bermuda-based Security Capital Assurance Ltd.'s XL Capital Assurance and XL Financial Assurance five steps to A.