MBIA Slashes Dividend, Will Sell Debt to Keep its High Ratings
The world's largest bond insurer, MBIA, cut its dividend by 62 percent on Wednesday and said it would sell $1 billion of debt to preserve capital and the "triple-A" ratings it needs to operate normally in a mortgage market under siege.
The company also stated it would report $737 million of losses in the fourth quarter, largely for securities made up of high-quality residential home equity loans.
Additionally, MBIA revealed it is cooperating with informal inquiries by the U.S. Securities and Exchange Commission and New York State insurance department into its December disclosures related to mortgage and other debt exposure, and a $500 million infusion from private equity firm Warburg Pincus LLC [WP.UL]
Shares of MBIA fell 55 cents, or 3.9 percent, to close at $13.40, while rival Ambac Financial Group Inc shed 17 cents, or 0.9 percent, to $19.25. Both had earlier plummeted more than 20 percent to levels not seen in more than a decade.
"People were spooked," said Rob Haines, an analyst at CreditSights Inc. "The talks may have sparked concern the Warburg deal might not go through, or that there are regulatory concerns that investors aren't aware of. With bond insurers, investors will latch onto negative news because it is such an out-of-favor industry."
The bond insurers are also facing a new rival, Warren Buffett, whose Berkshire Hathaway Inc said on Wednesday it has begun offering its own bond insurance.
Published on January 10, 2008
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