Net income rose eightfold to a record $1.7 billion, or $7.14 a share, after a change in accounting rules allowed MBIA to record a $3.3 billion gain on the declining value of its liabilities. Profit excluding the gains was 96 cents a share, exceeding the average analyst prediction for a loss of $1.23, based on a Bloomberg survey. MBIA said new business production fell 93 percent after losing its AAA ratings.
MBIA's decision not to take further impairments surprised analysts and contrasts with other companies including competitor Ambac Financial Group Inc. and mortgage-finance provider Freddie Mac, which both increased reserves as the worst housing slump since the Great Depression deepened. MBIA said the market declines this quarter are in line with its expectations, lessening the need to increase reserves on securities it insures.
"It seems odd to me that they haven't taken any more losses,'' said Rob Haines, an analyst with CreditSights Inc. in New York. "The market continued to deteriorate during the second quarter and that was reflected by their competitors in their results.''
Stripped of its last Aaa credit rating on June 19, MBIA's adjusted direct premiums, a measure of new business, dropped to $29.8 million in the quarter and its stock tumbled 64 percent. MBIA, Ambac and other bond insurers had been posting record losses after guaranteeing the repayment of securities backed by subprime mortgages including collateralized debt obligations.
"With these companies anything can still happen,'' said Jim Ryan, an industry analyst with Morningstar Inc. in Chicago. "The biggest factor is what's going to happen over the next six months to a year. There are a lot of headwinds out there.''