MBIA Earnings Jump, but Downgrades Weigh

MBIA's quarterly profit jumped sharply on gains from derivatives, but credit rating downgrades have made it much harder to win new business, the bond insurer said Friday.


Its stock climbed more than 5 percent on the New York Stock Exchange.

Second-quarter net income rose to $1.7 billion, or $7.14 per share, from $211.8 million, or $1.61, a year earlier.

The latest results included $3.3 billion in unrealized pretax gains on insured credit derivatives resulting from wider spreads on credit default swaps on MBIA Insurance.

The value of their bonds decreased, but the value of the credit derivatives, which protected the bonds, rose.

The company was able to record the gain due to an accounting rule change after the mark-to-market value of their liabilities fall.

Aftertax operating income rose 11 percent to $228.9 million from $206.9 million.

But profit per share fell to 96 cents from $1.57 due to more shares outstanding.

On that basis, analysts expected a loss of $1.46 per share, according to Reuters Estimates.

"While the deterioration in the housing and mortgage markets continued over the past three months, it has been consistent with what we projected when we established reserves and impairments for our housing-related portfolio in the first quarter," Chief Executive Jay Brown said in a statement.

He said MBIA's biggest disappointment was losing its "triple-A" credit ratings from Moody's Investors Service and Standard & Poor's.

The actions "had a significant impact on our asset management business and our ability to write new insurance business."

The company lost $2.4 billion in the first quarter, hurt by exposure to bonds linked to subprime mortgages.

The company has struggled with lower demand for its insurance as losses mounted from its exposure to risky residential mortgage-backed debt.

The Armonk, New York-based company said it did not need to take any unusual write-downs on credit derivatives or increases in loss reserves in the second quarter, but was prepared to do so if market conditions worsened.

In June, Moody's cut MBIA's main insurance unit five notches to "A2" from "Aaa," while S&P lowered its equivalent rating two notches to "AA" from "AAA."

MBIA also said its board approved the resumption of stock buybacks.

It is authorized to buy back $340 million worth of shares.