MBIA Business Upturn A Contrast To Rival Ambac >MBI ABK

Mar.10, 2008 in Market Outlook

Weeks after getting a new chief executive who has made a habit of frequent
communications with investors and the public, business is picking up for MBIA
Inc. (MBI).

In a letter released Monday, Jay Brown, who returned as chairman and chief
executive last month, said the business climate has improved. “The good news is
we are starting to write some business in the new issue market, and I have my
first couple of credit underwriting meetings this week, a lot more fun than
writing letters,” he said in Monday’s letter.

An uptick in new business for the largest bond insurer, especially when compared
to its closest rival’s continued downturn, suggests that the market is getting
more comfortable with how MBIA has reacted to the growing U.S. housing crisis.

A spokesman for New York Insurance Superintendent Eric Dinallo said the
regulator’s efforts to expand and stabilize the industry was geared for just such
results.

“Our goal all along has been to protect policyholders and ensure a competitive
market for bond insurance going forward,” said Dinallo spokesman David Neustadt.
“So we are certainly pleased to see signs that those efforts have started to bear
some fruit.”

A first-quarter upswing would come as a welcome change from the end of 2007. In
the fourth quarter, MBIA’s adjusted direct premiums fell 38%, to $262.4 million
from the year-ago quarter, with big drops in every category except U.S. public
finance, which rose 13%. Its non-U.S. public finance came to a virtual
standstill, while global structured finance dropped 32%.

In January, MBIA undertook an aggressive capital-raising initiative, recruiting
Warburg Pincus for a $500 million investment and raising another $1.1 billion in
a stock offering, and $1 billion in a debt offering.

Ambac Financial Group’s (ABK) own capital-raising plans didn’t go as smoothly.
After announcing a share offering in January, it pulled the plan two days later
amid shareholder complaints. It completed a revised plan last week, raising $1.5
billion in a combination share and equity unit offering.

Both bond insurers needed the additional capital to safeguard their AAA financial
strength ratings. Ambac’s capital came too late to save its rating with the
smallest of the three major ratings agencies. Fitch Ratings cut Ambac to AA in
January.

Last month, Fitch put MBIA’s rating under review for a possible downgrade from
its current AAA rating. In an interview last week, a Fitch analyst said that the
top bond insurers’ large exposure to subprime mortgages through complex debt
securities called collateralized debt obligations was inconsistent with an AAA
rating.

MBIA responded last week by asking Fitch to withdraw its financial strength
rating altogether. Fitch hasn’t yet agreed to withdraw the rating.

In his latest letter, sent to MBIA shareholders on Sunday, Brown didn’t give
numbers for new business so far in the first quarter, but his comments seem to
indicate that MBIA is doing better than Ambac. The No. 2 bond insurer was able to
write only a “limited” amount of new business since November, and “virtually no
new business thus far in 2008,” Ambac said in an SEC filing last Wednesday.

The “new issue” market Brown refers to means that MBIA is getting some takers in
the primary markets, when a bond or security is first issued. In the secondary
market, a bond insurer guarantees payment on existing obligations that trade in
the secondary market upon the request of a holder of the bonds.

Shares of MBIA recently traded down 8.4% to $10.98, amid a generally weak market
that saw all publicly traded bond insurers trading lower Monday. Rival Ambac was
recently down 22% to $7.44.

- By Lavonne Kuykendall, Dow Jones Newswires

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