MBIAs Split – US-FOREX.US
The housing industry appears to be working its way back to health, and investors will find out Thursday if the same can be said for bond insurer MBIA.Wall Street expects MBIA
to report a loss of 92 cents per share on Thursday. MBIA’s report will be followed Friday by fellow bond insurer Ambac Financial
which is expected to record a loss of 1.04. During the hay-day of the 2000s, MBIA’s stock traded around the high 50s and low 60s. All that changed in the fall of 2007 when the walls came tumbling down, leaving MBIA and other bond insurers like Ambac struggling to maintain their investment-grade rating. They weren’t successful, which was a major blow as the purpose of bond insurance is to enable municipalities with lower credit ratings to ride on the higher rating of the insurer, thereby lowering their borrowing costs.The industry owes much of its problems to the ill-fated ploy to boost profits earlier this decade when it diversified into backing mortgage-backed securities, from the relatively safe but lower-margin business of guaranteeing municipal bond payments. Municipal bonds rarely default, whereas over-extended homeowners often do.By February of 2009, the company opted to split itself into two parts, with one focusing on international and structured finance, while the other covers public finance. ;”>”MBIA Splitting Itself Up.” and “Can MBIA Save its Bond Business?”) Since the beginning of the year MBIA’s stock has mounted something of a comeback, rising 31.5% to 5.35. In contrast, its chief rival Ambac Financial has faltered 10.8% since January. The industry is still experiencing problems, and the past week was particularly tumultuous. Last week Standard and Poor’s cut its rating on Ambac and its insurance arm to a very speculative level. The rating cut was quickly followed by Moody’s which said Ambac’s insurance arm is at high risk of regulatory intervention, thus increasing the likelihood that counterparties to the insurer will have to toss contracts they hold with the firm at a large loss.