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.

MBIA Shares Rally As Berkowitz Increases Stake

Shares of MBIA Inc. (NYSE: MBI) jumped than 5% Tuesday after Bruce Berkowitz, head of Fairholme Capital Management, disclosed a bigger stake in the bond insurer. Late on Monday, Fairholme disclosed in a regulatory filing 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.

MBIA Inc. (NYSE: MBI): Q1 Earnings Preview

MBIA Inc. (NYSE: MBI) is scheduled to release its first-quarter 2010 financial results after the market close on Monday, May 10, 2010. Analysts, on average, expect the company to report a loss of $1.02 a share on revenue of $252.47 million. In the year ago period, the company posted a loss of $1.51 per share on revenue of $371.57 million.

MBIA Inc. provides financial guarantee insurance and credit protection products, as well as investment management services to public finance and structured finance issuers, investors, and capital market participants worldwide. The company operates in two segments, Insurance and Investment Management Services. Despite ongoing litigation, less than stellar ratings and continued losses on structured finance products, MBIA Inc. managed to post positive net income last year.

In the preceding fourth quarter, the Armonk, New York-based company posted net loss of $242.02 million or $1.16 per share, compared with a net loss of $1.2 billion or $5.21 per share in the comparable period a year-ago. Total revenues for the quarter were $652.66 million, compared with $1.58 billion a year-ago.

The management of the company considers nonGAAP ABV (adjusted book value) as the best estimate of the present value of the company's assets and liabilities. It includes about 1.5 billion in expected recoveries under warranties and representations. At the end of 2009, ABV stood at 36.35 per share. Jay Brown, in his letter to shareholders for 2009, was willing to put forward 45 as an intermediate goal.

The value of MBIA's stock is contingent on the company's success in litigation. CEO Jay Brown has articulated a strategy of pursuing legal remedies against every party who wrongfully harmed the interests of MBIA shareholders. In April, the New York State Supreme Court released a decision on the suit bond insurer MBIA (MBI) filed against Merrill Lynch (BAC), alleging fraud in securing CDS protection on 4 CDOs of ABS with a face value of 5.7 billion. Five out of six causes of action were dismissed: one will be permitted to go forward. Dismissed were causes of action for fraud, fraud by comission, negligent misrepresentation, breach of covenant of good faith and fair dealing, and an action to enforce contractual rights.

Shares of MBIA recently got some boost after the Securities and Exchange Commission alleged Goldman Sachs Group fraudulently structured a complex mortgage-related vehicle known as a collateralized debt obligation. The latest development gave hope to the investors that the bond insurers could win lawsuits against Wall Street banks.

In terms of stock performance, MBIA shares have gained nearly 41% over the past year.

Full Disclosure: None.

MBIA Inc. (NYSE: MBI): Q4 Earnings Preview 2009

MBIA Inc. (NYSE: MBI) is scheduled to release its fiscal fourth-quarter 2009 financial results after the market close on Monday, March 1, 2010. Analysts, on average, expect the company to report a loss of $1.11 a share on revenue of $236.96 million. In the year ago period, the company posted a loss of $5.30 per share on a negative revenue of $1.59 billion.

MBIA Inc. provides financial guarantee insurance and credit protection products, as well as investment management services to public finance and structured finance issuers, investors, and capital market participants worldwide. The company operates in two segments, Insurance and Investment Management Services.

In the preceding fiscal-third quarter, the Armonk, New York-based MBIA's net loss to common shareholders was $727.8 million or $3.50 per share for the third quarter of 2009, compared with a net loss of $806.48 million or $3.42 per share a year ago. MBIA said the net loss for the quarter under review was driven by an $810.2 million pre-tax unrealized loss on insured credit derivatives, $238.8 million in pre-tax loss and loss adjustment expenses primarily related to its insured exposures to second-lien mortgage loan securitizations, and $171.4 million in pre-tax realized losses and other-than-temporary impairments on investments. For the quarter, MBIA recorded consolidated negative revenues of $620.16 million, compared to revenues of $319.76 million in the prior year quarter.

As of September 30, 2009, MBIA's adjusted book value or ABV was $39.05 per share, compared to $40.06 per share at December 31, 2008. ABV is a non-GAAP measure that excludes the impact of changes in the fair value of insured credit derivatives and temporary asset impairments but includes the present value of future expected loss payments on insured credit derivatives, net of recoveries (credit impairments).

It appears that macroeconomic conditions have continued to contribute to losses on the group’s structured finance products. MBIA also has an indirect exposure to subprime mortgages that are included in collateralized debt obligations (CDOs), in which the company has guaranteed the senior most tranche of such transactions. There has been considerable stress and continued deterioration in the subprime mortgage market since early 2008 and in 2009, reflected by delinquencies and losses, particularly related to subprime mortgage loans originated during 2005 to 2007. The increase in delinquencies has been negatively affecting the company’s results. A reversal in the trend is not expected until the second half of 2010.

Meanwhile, the adverse rating actions by the major agencies throughout 2009 have hurt MBIA Corp’s ability to attract new financial guarantee business. The company’s market share decreased to approximately 2.2% in 2008, compared to approximately 23.0% in 2007. Additionally, MBIA Corp. did not underwrite any non-U.S. public finance transactions in 2009 due to its previously announced decision to suspend the writing of all new structured finance. The structured finance industry offers very little new business opportunity; it is still quite uncertain when or how MBIA Corp may re-engage in this market.

MBIA has been facing rating downgrades for quite some time. Once the strongest of the bond insurers, the company has been downgraded by the rating agency Standard & Poor's, to BB- from BB. The company’s principal bond insurance unit, MBIA Insurance Corp., was downgraded to BB+ from BBB, which is considered non-investment or junk status. The ratings carry a negative outlook. The rating agency is of the opinion that losses on residential mortgage-backed securities and collateralized debt obligations that MBIA guaranteed from 2005 to 2007 could be higher than expected.

Early in February, MBIA Inc. announced that it has restructured its fixed-income asset management subsidiary. The firm, now known as Cutwater Asset Management, will operate under the MBIA corporate umbrella as a separate operating company focused on fixed-income asset management. The move is seen as part of the company's overall transformation effort to create a traditional holding company structure in which its individual business units operate as separate entities. The firm, now known as Cutwater Asset Management, will operate under the MBIA corporate umbrella as a separate operating company focused on fixed-income asset management.

Recently, MBIA Inc. lost a bid to dismiss a lawsuit that accuses it of splitting up its guarantee business to illegally cut the odds that it would have to pay off on bond insurance policies. The suit was brought by Bank of America Corp., JPMorgan Chase & Co., UBS AG and about 15 more of the world’s largest financial companies against MBIA, which said in February 2009 that it would divy its insurance business into two companies after losing top credit ratings following record losses in the mortgage market. The 18 financial institutions filed suit in May 2009 to overturn the split, arguing that MBIA had inappropriately stripped assets from the MBIA Insurance Corporation, making it insolvent.

The company is facing several other suits filed by funds that claim they’ve been hurt by the split as owners of bonds insured by MBIA.

In terms of stock performance, MBIA shares have gained nearly 62% over the past year.

Full Disclosure: None.