It is true that City and BAC results are not encouraging. But the fact is that they reduced provision for loan losses as they are seeing a better future. How is this bad for an insurance company? Why MBI should be impacted this much?
On the reps and warranties, the increase, I am not too clear whether we’re going to a new level of expenses, I mean you were at the lower level of about $0.5 billion for several quarters. Is this a new level? Is this a part of this reserve bill? Could you flush that out a little?
Carol, you might imagine, there is a real variability in the degree of dialog between us and the various monolines. In some cases, we’re in a very constructive discussion where we have an ability to understand our exposure and measure it and accrue for it. In other cases, there is litigation involved and a lack of communication because of the condition and the circumstances of those monolines. So, what we’ve tried to do, as we would each quarter, is make our best judgment and our best estimate around that exposure.
Last quarter, we told you that as it related to monolines, we didn’t have enough information to make an accrual. We have more information this quarter to make an accrual. It will depend upon the dialog with the monolines or the lack of dialogue and the kind of work we do to see if we change our estimates. So, what I communicated in my prepared remarks was that it’s going to be a bit lumpy, it’s going to be a bit variable and there is not a run rate concept here given the behavior of the monolines.
I think, Chuck, the actual cost was really flat for the first quarter. The additional was the hedge reserve we’d expect in the future term.
This roughly is $700 million addition was reflective of that.
In other words, they have "constructive discussions" with some of the monolines (AGO?) but due to litigation MBIA and Ambac must wait. Since, yeah, it is very hard to go trough your own books and check the number of breaches without the help of your claimant.
Puzzling at the very least. In the transcript they refer to it as an "expense and related reserve"....I haven't pored through the Q2 financials, but I would guess that a part of that expense is drawn from the reserves. Would that mean reps & warants expenses increased to $1.2B and they drew down from reserves?