That was a quick conservative estimate of the expected revoveries on the Credit Suisse deal. However, I must admit that I don't expect these recoveries to be booked over Q4 unless MBIA opts for booking put back recoveries based on "extrapolation" (similar to what Ambac did over Q3).
Below the maths:
First a gestimate of the expected losses on the CS deal (based on the lawsuit information):
* "a total of $464m of loans have already defaulted" * "MBIA made $296m of payments already" * I guess the difference between the two being the attachment point, i.e. $168m, ca. 19% * "from a random sample of defaulted loan files, 79% breached reps & warranties" * "51.5% of the pool already has defaulted"
Let's assume MBIA made reservations based on another 50% losses on the remaining outstanding pool: * 50% over 436 of loans = $218m
Total losses: $464 + $218 = $682m (over a 900m deal)
Loss threshold: 168m
Total losses and loss estimates booked by MBIA:
* $682m - $168 = $514m
Total put back recoveries to be expected: * Assume 79% put backs: 79%* 682m = $539m * Since the $539m is larger than the expected losses, MBIA will book, some day, a recovery of $514m minus the $78m already reported, i.e. $436m (514-78)