I have spent the morning reading the board here. Longs are trying to find value. Shorts are hoping for disaster.
I listened to the conference call the other day until my ears just about fell off. They gave me the feeling they had enough resources to make through this economic downturn time period. Then Thursday morning they announced they were issueing stock to the tune of $1billion.
They have a market cap of $1.5B which to me dillutes their share price sharply.
Our good friend Mr Buffet says I am going to get into the market and has limitless resources. (Even he has limits)
It is hard to know when and how to get into this company. It has a great past. It's near future is still troublesome and it long to term future is diluted by new competition.
If the company is worth 26-28 (prime value) currently and would it be or not be true, because of disolution it has new value of 15-16 (prime value). If you discount the stock for current instability doesn't it make it a $8-10 stock and possibly $7-9 dollar factor because of Buffet? Knowing the restortive value should be back in the $30's if it can navigate its way back?
I want to buy but it looks too high.
You sound like the average short here.
If you feel it is worth 9 then you have answered your own question. But you have 17 hours before the next announcement that will make things difficult for you.
I started buying MBI at 17 and bought all the way down to 8. I also bought some ABK debt when it yielded around 12%. When both posistions turned green I sold intending to trade back in. Now I am not so sure. Despite reassurances by the company I am troubled by the fact they paid 14% to raise some capital. I could write that off as a one time event, but they then turn around and heavily dilute the stock at very low prices. Throw in a dividend cut and this all seems rather desperate for someone who is near AAA and claims to be in good shape.
I don't think MBI will go bankrupt and never did.I think they can go into runoff if they have to and survive.I think they can probably surive as AA or even A rated and stay in business. But what will it be worth in those scenarios? Say Barron's was right and it would have been worth 30 bucks a share- how about after dilution? Say Goldman was right and it's six bucks a share- less now. What if they have to issue more stock?
Because of the dilution, I would have to add more shares than I originally bought to keep my ownership stake level.I also don't like management only anwswering questions which have been submitted in advance of analyst meetings. Throw in Buffet as a competitor and you really have to ask what is the true value of this company? S&P puts a 12 dollar target price on it- but these targets are all over the map primarily because it is so hard to get a handle on their true exposure.
The instruments they insured are hard to understand- they obviously did not understand them when they took on the risk for the premiums they were paid.
So I am thanking my good luck for a bit of a profit here. I think Ackman is wrong about where these are headed but also think Warburg and Whitman may have paid too much originally which explains why they both are furiously averaging down. I don't like to buy into situations I don't understand and this has turned into one of these.
I am not saying Whitman won't do very well over the very long term. I suspect he will.I just don't see it and until I do I am out. RRW
Don't place too much faith in Buffet. His willingness to dive into this business is tentative at best. He is not going to earn the fat spreads that he thinks he can by just doing plain-vanilla municipals. It is a low-return, competitive segment of the market, and he still has two solid AAA competitors there (FSA & AGO.) Where has he been since he wrapped a small token block of NYC bonds a month and a half ago? They are pumping people for info and trying to learn the business, and I think they are finding out that, unlike P&C, it is a long tailed business that is nothing like P&C. (Here is a tip....know your limitations, and stick to what you know.) You have to live with bad decisions for years.....
IMO you will see some consolidation among those entities like ABK and FGIC that basically have solid municipal books of business. It is on this part of the book that they can raise new capital, and use most of their existing capital to be ring-fenced in a carve-out of the tainted structured business. The strucured business can go into run off and the profitable business can move on with AAA's and fresh capital. I just gave you for free what Goldman bankers charge mils $$ for.
I also listened to the conference call, I know the presenters were biased toward their Co. but then I realized that they are accountable for what ever they say on a public form like this. If they give false information, they are liable and could be sued big time. Someone like Ackman or other doomsday advocates, who are short on the company, can say whatever they please in an effort to pad their position without having to worry about being liable. If an investor makes a short position based on Ackmans information and the stock goes up, they have no responsibility.
I am neither short or long but am looking at MBI. I thought the CC was very informative with vastly more facts offered and backed up, than offered by any of the financial pundits that speak with impunity. In this respect, the game is very unfair.
One way to look at it is through what value folks call the "private market value" --- what a buyer paid when he had better than market information as we can guess the institutions had when they paid $12.15 at the last offering.
Keep in mind, as well, that 12.15 would be the post-dilution price as the folks doing the diluding were the same as folks buying the shares. NO one was more aware they were buying diluded shares than those folks buying the offering.
The notion of book is not useful here. I have not seen much oppostion to Whitman's notion that owners of MBI would be made whole if MBI were forced into "run off" ie liquidated by doing no new business other than taking in the existing premium stream and paying out such claims as occur. While that may make an investment "safe" it does not make it "cheap".
Cheap would depend on if you believe MBI will actually return to "normal earnings". I took the 9 years prior the crisis and divided by the now M200+ shares that exist post-dilution and got "normal earnings of just over $3 per share. A 15% return per annum on that would price the shares right at 20. That is cheap or not depending on if you first believe MBI will not be forced into "run off" by a downgrade in its ratings.
It was, however, that downgrade which the folks who bought the offering thought they were trying to prevent when they paid the 12.15.
Technicaly, you can be comforted in the short term by the falure to make those institutions that bought the offering look like idiots the day after -- the attmept at the open to drive down through that price failed. 12.15 is a price that matters and as you make up your mind 12.15 is the price you need to watch.