|
|
|
||
MBIA gave investors who don't follow this blog a nasty surprise last night! |
| Written by Reggie Middleton | |
| Thursday, 20 December 2007 | |
|
From Briefing.com and streetinsider.com: "MBIA (MBI) gave investors a jolt this morning when it disclosed that its total exposure to Collateralized Debt Obligations, or CDOs, totals $30.6 billion. Included in that exposure is $8.1 billion comprised of CDOs and mortgage backed securities, 70% of which is rated AAA. " Boom, Bust Bling readers can not tell their associates "I toldja so". MBIA is down $7 through midday trading, as if anybody should truly be surprised. "MBIA's announcement is especially disconcerting considering the company withheld the information from the public until after its rating was upheld by Moody's and Standard & Poor's. " I'm still waiting to see how Moody's justifies a AAA rating. I have this company looking at insolvency and they have it at AAA. One of us really don't know what we are doing! "According to CMA Datavision in London, credit-default swaps tied to MBIA's bonds climbed 115 basis points to 595 basis points, the widest on record" To the CDS sales manager at MF Global, now you see why I needed what I was asking for at your party. "MBIA posted a document on its Web site last night showing it insured the so-called CDOs-squared, a riskier form of security than what the company usually guarantees. " "Morgan Stanley analyst, Ken Zerbe, wrote in a report yesterday, ``We are shocked management withheld this information for as long as it did. MBIA simply did not disclose arguably the riskiest parts of its CDO portfolio to investors.'' Just see A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton for a real scare. Come on guys! It's really not that shocking, and wasn't very hard to see coming either. The funny thing is that Ambac is not falling nearly as far in sympathy. MBIA is in very bad shape, Ambac is in worse shape. If you guys didn't like what you heard about MBIA, you better cover your ears when word gets out about Ambac. The so called good stuff that they posted on their web site to make use feel better screamed insolvency. Just imagine what the stuff they are hiding must look like. I'm going to post the Ambac mark to E*trade scenario to illustrate how bad off these companies are. Here is the most current monoline rundown in chronological order:
Add this page to your favorite Social Bookmarking websites          Trackback(0)
Comments (8)
  written by Reggie Middleton, December 20, 2007
 written by John, December 20, 2007
Thanks for yor MBI analysis. I had seen the report from Creidt Suisse earlier in the summer, but did not act on it. Hedgefundmanipulator from Denninger's Market Ticker forum said to short these guys months ago. After reading some of your posts, I decided to buy some Jan $30 puts. Your conviction and analysis was enough to put me over the edge. Well, this morning was a good day, although the time premium was almost non-existent. I will still take the over 400% gain. Thaks Reggie!
written by Reggie Middleton, December 21, 2007
From Bloomberg: Bond Risk
Credit-default swaps for MBIA soared as much as 145 basis points to 625 basis points, the widest ever, before narrowing to 568 basis points, according to prices from CMA Datavision in London. That means it costs $568,000 a year for an investor to protect $10 million in MBIA bonds from default for five years. One-year contracts surged to 1,050 basis points, prices from broker Phoenix Partners Group show. That implies investors are pricing in a 20 percent chance of default by March 2009, according to a JPMorgan Chase & Co. valuation tool used by Bloomberg. Contracts on MBIA's bond insurer, MBIA Insurance, climbed 55 basis points to 300 basis points after reaching 340 basis points earlier today, CMA prices show. Contracts tied to Ambac rose 17 basis points to 582 basis points, according to CMA. ``How is confidence expected to return to the capital markets when these types of surprises continue to pop up?'' said Peter Plaut, an analyst at New York-based hedge fund manager Sanno Point Capital Management. Need I say more.
written by Mark Edmunds, December 27, 2007
You have no doubt seen the following two quotes, which were released about MBIA last week.
"It?s surprising,? said Piper Jaffray analyst Michael Grasher, ?considering others have disclosed their CDO-squared for a couple of months now.? "We are shocked that management withheld this information for as long as it did," Morgan Stanley said. "This new disclosure completely changes our view of MBIA being a 'more conservative underwriter' relative to Ambac." Any guess about how long it takes for MBIA to get hit with a securities class action lawsuit? Lawsuits would seem likely even without the quotes, but the quotes make the case more convincing.
written by Reggie Middleton, December 27, 2007
MBIA has an out. They have technically released the info earlier, which I am sure they did since they probably ran it past legal. The issue is the actual substance of their actions. The so called previous release slipped past many sell and buy side analysts, including my own (but since I really didn't trust their reporting, I discounted book anyway, and as you can see I was right). Although technically the release was performed, it is possible to perceive an intent to conceal. Even if their is no valid legal argument, you see what the market did to their stock.
Don't get me wrong though, I definitely wouldn't bet against litigation.
written by Me, December 28, 2007
Just for the fun of it R. M. go read J. Sinclair's site if you haven't already.
written by Mark Edmunds, December 28, 2007
You probably know that Berkshire Hathaway Assurance Corp opens for business in New York State today. Although the details are not exactly the same, the basic idea (Berkshire getting into the bond insurance business) is not far off from an idea presented in a previous post. It will be interesting to see how the market reacts, but I think this means that you can stick a fork in MBIA and Ambac as going concerns. It is difficult to imagine that their balanced sheets, leveraged with toxic crap, can compete with a bona fide AAA like Berkshire. With a weakened competitive position and losses flowing through their income statements, downgrades seem inevitable (though this could take a while).
In the personal e-mail correspondence that you posted to this blog, your friend seemed very confident that Ambac and MBIA would get the capital they need from hedge funds. This surprises me. I disagree with much of what Ackman has said (if I listed my gripes here you would need to provide me with another "longest blog post" award, but your audience will likely get to enjoy/endure my thoughts in a future diatribe). However, I completely agree with Ackman that it makes much more sense to "greenfield" a new bond insurer (as Berkshire has done) than to deal with the baggage on the books of MBIA or Ambac (or SCA, FGIC, or ACA). Does your friend still think the hedge funds will pump more money into MBIA and Ambac given that Berkshire is in the picture? If so, is there a compelling investment thesis or is it just that he is confident their investment bankers will find the dumb money? While it is definitely possible that FSA and Assured Guaranty will sustain large losses, this seems far from obvious based on my review of the publicly information. Can you share any thoughts on how FSA and Assured will be hurt? If these two are OK, the dominant players a year from now are likely to consist of Berkshire, FSA, Assured Guaranty, and possibly another start-up. Radian could emerge as a dark horse. To compete with Berkshire, the existing participants will need to raise capital. Another post will follow soon on the topic of loss estimates for the bond insurers -- the estimates you developed, Egan Jones' estimates, S&P's estimates, and estimates I derived.
written by Reggie Middleton, December 28, 2007
I don't follow the smaller insurers, so I can't intelligently comment on their prospects. In general, I don't like the business model, though. Insurance is a business of statistics, wherein if you have the capital, time will be on your side and you will make money because the risks you are insuring are worth less than the premiums you collect. The only risk, if underwriting is done properly (prudent underwriting to screen out adverse selection), is an outlier event that warps the probability tables - eg. bad luck. That is what the capital is for, to smooth out the periods of bad vs. good luck. Not to pay claims on losses, per se (no insurance company will ever make money doing that). Insurers were not designed to pay claims, they were designed to benefit from others desires to sell off the risk of probability.
The monolines venture into structured products is not insurance. It is gambling with shareholder's capital. They are too leveraged to withstand the probable losses of the product they guarantee. They have no legitimate loss history, hence they can't legitimately say that they are riding the probability tables, they are guessing an gambling. Taking bad guesses and gambles at that, since the models used relied on perpetual housing appreciation advances. As for unerwriting, companies such as ACA seemed to have written mostly adversely selected business. Adverse selection is when only those that know they will submit a claim buy insurance, hence you will be guaranteed losses in the future. untested, leveraged structured products built on top of theoretical models, backed by formerly risky (ex. subprime before rating agency blessings) assets, are a perfect example of adverse selection. As you can see, long posts are welcome mark. Post on!
Write comment
|
|
| Last Updated ( Thursday, 08 January 2009 ) |
TrackBack URI for this entry
Subscribe to this comment's feed
| < Prev | Next > |
|---|
They are still trying to be too poliical. If this was a homebuilder, they would be junk by now. No one wants to pull the trigger. Time may tell, but the last to pulls the trigger may be the first one to testify in front of Congress, or worse...