MBIA $4 Billion From Its Investment Portfolio; Ambac's Investment Portfolio

Ambac shares are really getting killed today (down 20% on no news). I wonder if it has to index changes (Ambac was removed from Russell 1000 on Friday and inserted into the Russell 2000 today.) Further decline will result in a risk of being de-listed from NYSE (although that risk is not near)...

MBIA disclosed that it liquidated a portion of its investment portfolio, to the tune of $4 billion to satisfy collateral and early redemption requirements due to it being downgraded. It also denied a report from last week's Wall Street Journal saying that it had sold muni bonds. The bad news is that it resulted in $300 million in losses. The losses were supposedly already taken before but the sales crystallized the unrealized loss to a real loss.


For those not familiar, the investment business is seperate from the insurance business. The monolines agree to manage the funds collected by municipalities and others in exchange for payments. If the monolines get downgraded, they are requireed to post collateral and/or refund the funds.

William Ackman's main argument for the collapse of FSA has to do with its investment contracts. MBIA took a $300m loss on them and Ackman claims that FSA's loss on its investment portfolio is going to bankrupt the monoline. As for Ambac, here is the required actions at various rating levels:



If Ambac gets cut to A, it has to collateralize most of its portfolio and return some of it. Here is the underlying ratings of the portfolio:



The portolio looks fine but the problem is that, given the credit crisis and irrational pricing, liquidating en masse may result in losses. If the portfolio is held to maturity, losses will likely be small.

Comments

  1. AnonymousJune 30, 2008 at 6:30 PM

    "Ambac shares are really getting killed today (down 20% on no news)."

    At this point it would be just cruel to continue to mock ABK/MBI stockholders. So I won't.

    I do have a question: much has been made by this blog its various participants that stock price does not reflect the _intrinsic value_ of the company.

    So if the stock goes down 20% on no news TO YOU...Is it possible that _some_ participants got some meaningful news ahead of you that, just perhaps, the company's _intrinsic value_ has changed?

    Of course, since this question is purely rhertorical (and admittedly quite unanswerable), it would say contrarian investing is somewhat faith-based, at least initially. It will become fact-based when news eventually filter out to the small investors who fancy themselves as "contrarians."

    ReplyDelete
  2. Sivaram VJune 30, 2008 at 8:10 PM

    SYNHCRO: "So if the stock goes down 20% on no news TO YOU...Is it possible that _some_ participants got some meaningful news ahead of you that, just perhaps, the company's _intrinsic value_ has changed?"


    That's always possible...

    ReplyDelete
  3. AnonymousJuly 1, 2008 at 12:56 AM

    No need to respond, just a link worth considering.

    http://paul.kedrosky.com/archives/2008/06/30/the_end_of_naiv.html

    ReplyDelete
  4. AnonymousJuly 1, 2008 at 12:57 AM

    http://paul.kedrosky.com/
    archives/2008/06/30
    /the_end_of_naiv.html

    ReplyDelete

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