Thursday, February 24, 2011

MBIA Inc. (NYSE: MBI): Q4 Earnings Preview 2010

MBIA Inc. (NYSE: MBI) is scheduled to release its fourth-quarter financial results after the closing bell on Tuesday, March 1, 2011. Analysts, on average, expect the company to post a loss of 27 cents per share on revenue of $144.93 million.

MBIA Inc., together with its subsidiaries, provides financial guarantee insurance and related reinsurance, advisory, and portfolio services, as well as investment management services to public finance and structured finance markets.

In the preceding third quarter, the Armonk, New York-based company's net loss was $213 million, or $1.06 per share, compared to a loss of $728 million, or $3.50 a share, in the year-ago quarter. The net loss was driven primarily by a $492 million pre-tax net loss on the fair value of insured credit derivatives resulting primarily from increased market prices on recovery rate and credit default swap derivatives in the mark-to-market model, which decreases the non-performance risk components associated with MBIA Corp. The adjusted pre-tax loss, a non-GAAP measure, for the third quarter of 2010 was $68 million compared with an adjusted pre-tax loss of $446 million in the third quarter of 2009.

MBIA and other bond insurers, like recently bankrupted Ambac, wrapped billions of dollars' worth of private-label subprime mortgage debt during the housing boom. When the housing market imploded, the firms received ratings downgrades, which left them unable to write new business, while paying out claims against hundreds of thousands of defaulted mortgage bonds.

MBIA has managed to survive and it’s trying to get back into the business of insuring municipal bonds through a new subsidiary called National Public Finance Guarantee Corp. The New York State Insurance Department allowed MBIA to transfer the muni bond business of its current bond insurance unit to the new subsidiary. The company also transferred billions of dollars in assets from the old unit to the new one. That left the old bond insurance business with legacy exposures to troubled assets such as residential mortgage-backed securities and CDOs.

For the past few years, MBIA has been locked in litigation with banks. Recently, a New York appeals court decided in the company's favor, potentially allowing the bond insurer to move forward with its restructuring plan. The firm has accused certain lenders, including Bank of America (NYSE: BAC) and Ally Financial, of misrepresenting the quality of loan pools behind the mortgage bonds that MBIA guaranteed.

Recently, Bruce Berkowitz, head of Fairholme Capital Management, disclosed a bigger stake in the bond insurer. Fairholme said in a regulatory filing late Monday that it owns just over 38.45 million shares of MBIA, or 19.2% of the company. In November, Fairholme disclosed a stake of just over 33 million shares, or 16.5%.

Full Disclosure: None.
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