MBIA Loses $2.3 Billion on Write-Downs
MBIA Inc. reported write-downs of $3.5 billion on souring credit markets Thursday, exacerbating concerns that rising costs could squeeze local governments as well as slow any recovery for big banks.
Continued weakness in the bond insurance market may put struggling banks in a precarious position. Banks, which have reduced portfolio values by more $140 billion during the second half of 2007 in a deteriorating mortgage market, might be forced to take further write-downs tied to bonds insured by companies like MBIA.
MBIA said it is considering new options to raise capital.
The insurer lost $2.3 billion in the fourth quarter, or $18.61 per share, compared with earnings of $181 million, or $1.32 per share, during the same period the previous year.
Analysts polled by Thomson Financial, on average, forecast a loss of $2.97 per share for the quarter. Shares of MBIA fell 4.5 percent, or 63 cents, to $13.33 at the open of trading Thursday.
During the quarter, MBIA reduced the value of its credit portfolios by $3.5 billion, reducing earnings by $18.04 per share. The losses were primarily tied to the reduced value of collateralized debt obligations in its insured portfolio.
So-called CDOs are complex financial instruments that combine various forms of debt.
MBIA raised more than $1.5 billion in recent months to try and maintain its critical "AAA" rating. The company raised $1 billion through the offering of surplus notes and another $500 million through a direct investment by private equity firm Warburg Pincus, which closed Wednesday. Warburg Pincus has also pledged to backstop an additional $500 million rights offering.
Oppenheimer & Co. analyst Meredith Whitney said banks' could take up to $70 billion in additional write-downs because of the faltering bond insurers.
Struggles at bond insurers could also make it prohibitively expensive for municipalities to raise money for everything from street repairs to playgrounds.
The bond insurance market is in the midst of a major upheaval after ratings agencies began reviewing their operations during the fourth quarter. Due to rising delinquencies and defaults on mortgages, ratings agencies believe bonds and securities backed by those troubled loans will increasingly default as well, forcing bond insurers to pay out claims.
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