*Settlements effectively net to zero in terms of balance sheet.
*Deferred tax asset is up over a billion dollars. This plus the tax sharing agreements should be a key focus in the conference call as the structured finance entity is still in severe distress. I understand tax sharing agreements (derivative or insurance accounting not so much) and I do know their disclosures are not strong enough to evaluate whether or not the structured finance entity will benefit from the losses it brings to the group. More importantly, management needs to provide some color on how they will generate sufficient income to absorb the DTA which is a huge component of equity (over a third).
*GAAP book value is going to take a big hit next quarter due to derivative accounting and credit risk declining. This is something I've never really fully grasped but in the past I know this is the way it has worked. The risk of their defaulting has resulted in huge gains over the years and the impact of this possibly reversing was not in the press release. I can understand why they didn't include (they don't have data) but they should provide a range in the conference call.
*Know that there are a lot of new investors here. Don't make the mistake of relying on Adjusted Book Value. Even when times were good in the bubble years this was not an indicator of share value from what I have read. Also reflects my bias against non-GAAP measures.
Also, at least one analyst is tossing around book values of National Public Finance as an indicator of value. That is fine but don't forget to subtract out the negative value of the parent o.k.?
*KEY QUESTION. Structured Finance remains in distress. The GAAP financials said $540 million in book equity and the statutory financials say zero equity (after subtracting out the surplus notes but excluding the value of the deferred tax asset) last quarter . Will the parent put equity into the company at some point in time?
Yes some good comments. The deferred tax asset can actually be a good thing and if because it can offset tax liabilities in the future. In most cases the DTA is on the BS because of carry forward losses and differences between the recognition of revenues, depreciation of Fixed Assets, etc.. Lets say this place actually starts making some profit I believe they will not have to pay taxes until they exhaust the $1BB in tax liability.
So yes there has been a settlement now the play on this thing is will it begin making money again or not. I think it stays in the 14-16 range for a bit until some other positive or negative news drives it beyond those boundries.
thanks for the reply and I do realize the deferred tax asset is a good thing offsetting future gains. However in the other post it sounded to me as though he was saying it's not clear if they actually get to use the entire amount. It sounded as if it's shared I assume by some of the banks they recently settled with, and that if those banks lose on the insured mortgages they can use part of the deferred tax asset. That's what I never caught in various press releases on the settlements. It sounded as if they were pretty much free and clear of any liabilities. It may be since it's a non cash payout if used it is not considered a liability. Although it also raises question if it is subject to claims by other is it a $1 billion non cash asset? I believe this was the point of the other post.
Good post. I am not following you on the deferred tax asset, it still an asset but from what you are saying I gather some portion of it may be shared with other entities? I was not aware of this as the recent deals appeared to indicate this was a little more cut and dry. I do not doubt what you are saying I just did not see it. You also state the mortgage division is still in distress. I am a bit surprised as it sounded as those with possible claims have waived those rights in lieu of the settlement. I had read this was the reason rating agencies were considering a credit upgrade as mortgage claims were now settled. I think you have a better understanding that I do, so I am not trying to refute what you are saying. The lack of much movement in ah indicates to me most are not quite sure what to make of this report.
When they incurred losses they have not been able to claim tax refunds. You can book a tax asset if it is more likely than not that you can realize the benefit at some point in time. On a consolidated basis MBIA hasn't paid taxes for a long time and I doubt they will be doing so anytime soon. There is a small hole in GAAP accounting in that the asset that is going to be recognized over many years (up to 20) isn't discounted so the present value of the asset, assuming it is actually recognized at some point in time, is less than what is on the balance sheet. It is a common issue, Citicorp, AIG, ETFC have the issue too.
If tax rates decline, the value of the asset immediately gets written down so if corporate rates decline as most people expect they will have to write down this asset.
My concern is something more esoteric. Are they going to give the benefits from the use of the losses to the structured finance entity or are there situations where the benefits will wind up at the parent and shaft the structured finance entity? The language in the 10-K makes it sound like it could happen but it looks like they left lots of wiggle room. If it weren't for MBIA's history of doing such things I wouldn't even raise the issue. Still, while important, the importance pales in comparison to the question of whether or not the parent is going to infuse any capital into the structured finance unit. I seriously doubt they will but it is a question that needs to be asked.