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MBIA Inc. Message Board

  • mnoris55 mnoris55 Jul 16, 2010 3:49 PM Flag

    No Rationality

    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?

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    • Thanks. FYI...AGO stayed away from the structured finance stuuff, that's why they're still AAA and writing new business.

    • From the Q&A session:

      Carole Berger – Soleil Securities

      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?

      Chuck Noski

      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.

      Brian Moynihan

      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.

      Chuck Noski

      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.

      Maybe this is why Countrywide was 8% down?

    • 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?

    • An expense is not the same a a reserve. An expense is a (quarterly) cost (unfortunately I am not an accountant to explain more clearly).

      Look at the earnings presentation, the chart on page 17:

      As you see, reps & warranties are deducted from revenue on a quarterly basis. R&W costs were flat at 500m previous 3 quarters and have now gone up to 1.2bn.

      Note that his remark on a volatile future number on R&W costs is an understatement for more bad news to come. And that is good news for MBIA.

    • Because MBIA's future depends on getting putbacks from these banks and there's no indication that it'll happen soon (if ever).

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