MBIA, Ambac Post Wider Losse
NOVEMBER 5, 2008, 7:37 A.M. ET
MBIA, Ambac Post Wider Losses
By KEVIN KINGSBURY and DONNA KARDOS
MBIA Inc. posted a much wider third-quarter loss amid a surge in loss reserves on second-lien residential mortgage-backed securities and losses at its asset-liability business.
Its results, coupled with those from Ambac Financial Group Inc., come as the nation’s largest bond insurers have been reeling from a foray into insuring mortgage-backed securities. Amid the credit crisis, claims have been rising.
MBIA reported a net loss of $806.5 million, or $3.48 a share, compared with a prior-year net loss of $36.6 million, or 30 cents a share. Its operating loss was $2.22 a share. Revenue fell 26% to $319.8 million as net premiums written quadrupled to $928 million amid a reinsurance deal that resulted in $812 million in premiums.
MBIA added $961 million to its loss reserves for exposures to second-lien mortgage deals; Ambac boosted reserves significantly for the same reason. Home-equity loans and lines of credit have seen surging delinquencies and defaults this year.
MBIA noted that early stage delinquencies in its insured deals were relatively flat the first half of the year but increased during the summer.
In addition to its other moves to recover, MBIA has recently gone to the courts. Last month, the company sued a unit of GMAC Financial Services as well as several units of Countrywide Financial Corp., claiming they had made misrepresentations about the quality of loans and loan underwriting standards related to the securitization of more than $17 billion in home-equity loans.
Separately, Fiserv Inc. Chief Executive Jeffery Yabuki resigned from MBIA’s board, citing his job’s increasing demands.
Ambac also posted a much wider third-quarter net loss on surging red ink from claims and derivatives.
Shares slumped 18% to $2.80 in premarket trading, and the results come as the nation’s largest bond insurers have been reeling from a foray into insuring mortgage-backed securities. Amid the credit crisis, claims have been rising.
The nation’s second-largest bond insurer reported a net loss of $2.43 billion, or $8.45 a share, compared with a prior-year net loss of $360.6 million, or $3.53 a share. The latest results included $2.71 billion in realized and unrealized derivatives losses, up from $723.3 million a year ago, with most of the latest quarter’s total due to increased loss projections for its portfolio of collateralized debt obligations.
Ambac reported negative revenue of $2.32 billion, compared with year-earlier negative revenue of $299.8 million. Both figures included drops in derivative values. Financial-guarantee revenue, excluding securities losses and accelerated premiums from loan refinancings, fell 6% to $294.4 million.
Net premiums written slumped 51%, though premiums earned jumped 45% amid refinancings and other so-called accelerated premiums.
Financial-guarantee losses and provisions soared to $607.7 million from $19.1 million, largely related to its second-lien insurance portfolio of residential mortgage-backed securities. Home-equity loans and lines of credit have seen surging delinquencies and defaults this year.
Ambac’s move into guaranteeing mortgage debt against default, coupled with a potential ratings downgrade from Moody’s Investors Service, drove the company in September to shelve plans to launch a new municipal bond insurance business using a dormant licensed insurance unit called Connie Lee.
That new business, called Everspan Financial Guaranty Corp., is still planned to be created, said its chief executive, Douglas Renfield-Miller.
Meanwhile, Ambac has focused on trying to regain its footing. It agreed in August to pay $850 million on a $1.4 billion credit-default-swap contract it held with Citigroup Inc., saving a potential $550 million. Now, amid the industrywide efforts to get capital injections from Treasury under its Troubled Asset Relief Program, Ambac is also pushing a bold plan to have the government absorb most of the industry’s portfolio losses above a certain threshold.
Write to Kevin Kingsbury at kevin.kingsbury@dowjones.com and Donna Kardos at donna .kardos @ dowjones .com