MBIA has Questions, Cancels Dividend, CEO Feels Pinched

CNNMoney is reporting MBIA eliminates quarterly dividend, saving $174M annually.

MBIA Inc. (MBI) said late Monday its board voted to eliminate its quarterly dividend. The Armonk, N.Y.-based bond insurer said the elimination will save roughly $174 million annually, which is the amount that the company paid out in dividends in 2007.

MBIA said the action was taken at the recommendation of Chairman and Chief Executive Jay Brown 'to further strengthen the company's financial resources and to increase its operating flexibility.' The dividend was reduced on Jan. 9 to 13 cents, although no dividends were paid out at that rate.

MBIA added that its board also voted to move to an annual dividend evaluation in the first quarter of each year.

'MBIA will continue to take reasonable and prudent actions such as this dividend elimination in an effort to retain and strengthen our Triple-A ratings,' said Brown in a statement. 'As a very large individual shareholder of MBIA, I'm the first one to feel the pinch from this action.

But I think this, coupled with my recent commitment to buy a substantial number of additional shares, demonstrates my absolute commitment to be aligned with our owners and to maximize long-term value.'

CEO First One To Feel Pinch

I am sure everyone feels sorry for Mr. Brown and Mr. Chaplan. Please keep them in your prayers.

I sure would hate to be pinched like that. How can they possibly get by?

Mercy!

Let's Do The Math

In MBIA Admits $30.6 Billion CDO Exposure we saw that in addition to the $30.6 billion in worthless CDOs that it guarantees, MBIA has an additional $8.1 billion in worthless CDO squared (CDOs of CDOs) securities that it guarantees. That's makes MBIA's total CDO exposure $38.7 billion. And it hid that for months. It has total cash of $5.73 billion. Even if one pretends those CDOs will be worth 50% on the dollar, how does one possibly get AAA out of that mess?

Questions Galore

Inquiring minds are wondering if $38.7 billion is the total CDO exposure. What about CDS exposure? Other MBS exposure? What losses are expected? That a lot of questions. But I am not the only one with questions.

Please consider MBIA Will Halt Asset-Backed Business, Split Units.

MBIA Inc., seeking to stave off a crippling credit rating downgrade, will stop writing guarantees on asset-backed securities for six months and will separate that business from its municipal unit within five years.

Chief Executive Officer Jay Brown also said he has "questions" about the company's 2007 preliminary results released last month and hasn't yet signed off on the statements, according to a letter to shareholders today.

Brown said he has been reviewing the company's 2007 financial statements, with a focus on MBIA's loss reserves and mark-to-market losses. The markdowns reflect the difference between what MBIA charged to insure certain securities and what it could have charged based on a change in the value of the underlying security during the period.

"It is a difficult and complex task for both the internal teams and the company's auditors to establish best estimates in the most volatile credit markets in the company's history," Brown wrote. "I have a few more follow-up questions that need to be answered for me to confirm the company's preliminary results which were released a few weeks ago."

MBIA's ability to raise $2.6 billion was "a strong statement of management's ability to address the concerns relating to the capital adequacy of the company," S&P said.

Moody's is still reviewing MBIA and Ambac for downgrades. Fitch cut Ambac's insurance rating to AA last month and is considering cutting MBIA. MBIA raised money through selling common shares and warrants to private-equity firm Warburg Pincus LLC and issuing $1 billion of surplus notes.

S&P estimated that MBIA may have losses of $5.5 billion before tax, eliminating its entire capital cushion.

Here's The Deal

• MBIA hid $38.6 billion in CDO exposure for months
• MBIA Posted a loss of $1.93 billion last year
• MBIA CEO Brown will not sign off on results
• MBIA CEO Brown has questions about how big the writeoffs will be
• The S&P estimated that MBIA may have losses of $5.5 billion before tax, eliminating its entire capital cushion.
• MBIA wants to hide losses for up to 5 years, hoping nothing else blows up, and future earnings cover the losses.
  

Anyone who thinks those CDOs are marked to market has holes in their head. To top it all off, earlier today the S&P Sniffed Horse Hockey and Called it a Rose, by reaffirming the AAA rating of MBIA and Ambac.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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