MBIA announces $2.3 billion Q4 writedown

The situation in the troubled bond insurance sector has worsened, with the announcement of a $2.3 billion fourth-quarter writedown by New York monoline, MBIA.

It could soon be a case of last monoline standing in the battle to retain triple-A ratings, following the news of MBIA’s worst quarterly performance on record. Fitch Ratings has already downgraded Ambac, Financial Guaranty Insurance and Security Capital Assurance, and MBIA remains a candidate for a downgrade.

This is despite the insurer raising $1.5 billion in new capital in the past month, plus its plans to issue a $500 million rights offering – backstopped by Warburg Pincus.

“We are disappointed in our operating results for the year, as performance of our insured prime, second-lien mortgage portfolio and three insured CDO-squared transactions led to unprecedented loss reserving and impairment activity,” said Gary Dupont, MBIA’s chief executive officer.

There was a predictable market reaction to the announcement, with MBIA five-year credit default swaps widening 49.3 basis points to 486.2bp. This is wider than Ambac, trading at 470.8bp, which has already been downgraded to AA.

That neither monoline is trading wider – their respective CDS spreads were above 700bp in mid-January – suggests the market is awaiting the outcome of discussions between insurance regulators, rating agencies, financial intermediaries and the insurers themselves. The talks, continuing since last week, are believed to be on the viability of a  co-ordinated bailout of the monoline sector.

See also: Monoline bailout looking likely
Clock ticking for troubled monolines