Like the results of main rival Ambac, the company attributed the positive development to moves in credit default swap (CDS) prices during the quarter, and results for the first half of the year remain at a net loss of $706.4 million. The amount attributable to unrealised gains in credit derivatives was $3.3 billion, while collateralised debt obligation (CDO) impairments cost the company $1.04 billion.
"We have stated before that mark to market is inconsistent with our business, this is as true for the positive move in valuations as it was for the previous negative results caused by this method," said Jay Brown, chief executive of MBIA, in a conference call to discuss the results on Friday. "It's clearly a new landscape that we are facing and we are studying how and when we will be able to re-enter the credit enhancement business."
During the period, MBIA suffered five-notch downgrades by Moody's from Aaa to A2, the most recent on June 19. Standard & Poor's has both MBIA and Ambac rated at AA with a negative outlook, since downgrading both companies on May 6 this year.
The downgrades have had a severe effect on MBIA, which estimates that the cost of additional writedowns and charges nets out to $306 million. The company stated it has shut down new business in reaction to an absolute inability to predict rating agency criteria changes and actions, said Brown in the call.
The company also confirmed that it is in talks with rating agencies regarding the possibility of setting up a new independent municipal-only bond insurer. In this it would be following the lead of its rival, Ambac, which said last week that its planned municipal bond insurer subsidiary, Connie Lee, would start operations in October. MBIA will make a final decision on whether to proceed in the coming months.