MBIA Says Looking at Ways to Shore Up Capital
MBIA, the world's largest bond insurer, said Thursday it is looking at ways to shore up its capital base, a day after rating agency Moody's Investors Service said the insurer was "somewhat likely" to require additional capital.
Bond insurers are broadly boosting their capital levels as the subprime mortgage crisis has forced them to set aside more money for losses and pay out more claims.
The insurers have multiple ways to boost capital, including issuing securities and reducing their new insurance volumes. To the extent that the companies insure fewer bonds backed by consumer debt, borrowing costs for everything from mortgages to credit cards could rise.
Moody's said Wednesday that a review of MBIA's residential mortgage-backed portfolio showed the company was at greater risk of falling short on capital than the agency had previously believed.
MBIA said in a statement that it has been "pursuing capital contingency plans, even in the absence of any immediate rating agency requirements." Spokeswoman Liz James declined to elaborate beyond the statement.
The company said it was not changing its quarterly dividend of 34 cents a share. Companies looking to boost their capital levels sometimes cut their dividends.
MBIA's shares traded as high as $30.84, up 12.47 percent, before closing at $29.84, a day after sliding nearly 16 percent. MBIA's shares have fallen about 60 percent this year.
For most bond insurers, increasing capital levels is crucial for maintaining triple-A credit ratings, which are in turn crucial for staying in business.
Bond insurer CIFG received $1.5 billion of fresh capital from Banque Populaire and Caisse d'Epargne in November.
Bond insurers generally have low capital levels relative to their exposure, and a few large defaults could stress their capital.
MBIA has outstanding insurance on about $673 billion of municipal and structured finance bonds, compared with about $14.3 billion of claims-paying ability as of Sept 30.
Activist investor William Ackman said last week that the bond insurer could be insolvent as soon as the second quarter of 2008. Ackman's Pershing Square Capital has sold MBIA shares short, in a bet they will decline.
Robert Genader, chairman and chief executive of bond insurer Ambac Financial Group, said last month if his company needed more capital it could write more insurance on bonds that require less capital, such as municipal bonds, and less insurance on securities requiring more capital, such as asset-backed securities.
Ambac could also write less new business in general, or use reinsurance, to increase capital levels, Genader said in a presentation on Nov. 28.
MBIA said in a quarterly statement with regulators filed in November that capital raising was possible. "The Company may undertake capital raising initiatives or other measures to raise or preserve capital, even in the absence of any immediate rating agency requirements," the filing said.