MBIA Eliminates Quarterly Dividend, Fights for Rating

MBIA, the world's largest bond insurer fighting to hang on to its top-notch rating, said Monday it is eliminating its quarterly dividend in a move expected to save the company $174 million a year.


The company also said it will stop ensuring new derivative credit contracts, and suspended the writing of new structured finance business for the next six months.

Jay Brown, MBIA's recently installed chairman and chief executive, said he recommended the board kill the payout to shore up the company's financial resources and improve its operating flexibility.

Last month, the Armonk, N.Y.-based company slashed its dividend by more than half, to 13 cents, although no dividends have yet been paid out at that rate. In a letter to shareholders, Brown said the company will declare and pay dividends on an annual basis in the future.

MBIA has been scrambling to raise cash to mollify ratings agencies that are threatening to downgrade its financial strength rating because of exposure to risky mortgage debt.

One of those agencies, Standard and Poor's, Monday afternoon affirmed its "AAA" rating on MBIA and Ambac Financial Group , another bond insurer fighting to stave off a downgrade.

MBIA has already sold $1.6 billion in stock and $1 billion in bonds to fortify its cushion of capital used to pay claims. But as the canceled dividend shows, the company appears willing to take further steps to maintain its top-notch rating.

"MBIA will continue to take reasonable and prudent actions such as this dividend elimination in an effort to retain and strengthen our Triple-A ratings," Brown said in a statement.

MBIA insures $670 billion in bonds. A rating downgrade could make it more difficult for businesses and municipalities that rely on those bonds to borrow money.

MBIA shares fell 28 cents to $14.30 in after-hours trading. The stock surged $2.40, or nearly 20 percent, to close at $14.58 after Standard & Poor's affirmed the company's ratings.