Bond Insurers Post Losses on Weak RMBS

Bond insurer MBIA Inc. (MBI) said late Monday it had recorded a $2.7 billion net loss — or $12.29 per share — for the full year 2008, up from the $1.9 billion — or $15.17 per share — lost in all of 2007. The company said it saw $1.2 billion lost in the fourth quarter alone, although this figure showed a decline from year-ago levels, when the company posted a $2.3 billion net loss in the fourth quarter 2007. The company said its quarterly loss was driven by a $1.7 billion pre-tax unrealized net loss — mark-to-market — on insured derivatives, as well as a $534 million realized loss on insured derivatives. MBIA reported paying a total $1.4 billion in claims on its second-lien residential mortgage exposures, including $483 million net of reinsurance in the fourth quarter, resulting “from defaulted mortgages that were ineligible assets in the securitizations the company insured,” according to the earnings statement. The company also said it is pursuing litigation against the two largest seller/servicers for reimbursement of the losses incurred on the ineligible assets, although any potential funds to be recovered have not been factored into the earnings. “The worst credit crisis since the Great Depression has stressed and bruised our company, and cost our shareholders dearly over the past 18 months as reflected in both our financial statements and our stock price,” said CEO Jay Brown. Fellow bond insurer Ambac Financial Group, Inc. (ABK) similarly filed hefty quarterly losses, reporting late last week that increased loss provisioning on residential MBS insurance led to a fourth-quarter net loss of $2.34 million, or $8.14 per share. The company said it had built its net loss provisioning to $916.4 million in the quarter. The increase in provisioning from a net expense of $208.5 million in the year-ago period was driven “primarily relating to the RMBS insurance portfolio,” company officials said. “Over the past 24 months, Ambac has recorded significant mark-to-market losses on its CDS portfolio and has incurred losses in its insured RMBS portfolio,” the company earnings statement read, in part. “The actual loss experience for these mortgage-related securities has been greater than originally anticipated. As such…management revised its estimate of potential future increases in loss reserves to conservatively reflect the potential impact that further deterioration in Ambac’s insured portfolio would have on future taxable income.” Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.