Less than 48 hours after it was specifically named as a target of a state investigation
of major bond rating agencies and insurers, MBIA announced
a record quarterly loss after writing down $3.5 billion.
MBIA, a major bond insurer, said it was looking at ways to raise additional
capital but the loss was wider than analysts had expected.
The company whose stock in trade had for years been the insuring of municipal
bonds had seen an opportunity of increasing its revenues by insuring packages
of subprime mortgages and other consumer debt. Now it is reporting a fourth-quarter
loss of $2.3 billion or $18.61 a share, mostly from that ill-conceived decision.
One year ago it reported a fourth-quarter profit of $181 million or $1.32 a
In addition to the $3.5 billion write down the company is setting aside $713.6
million more other anticipated losses. $613.5 million of that amount is earmarked
for specific endangered bonds.
Reuters reported that MBIA is in danger of losing top credit ratings
from Moody's Investors Service. That would make it harder for the company to
acquire new business and might force existing investors to sell billions of
dollars of securities. Reuters said that raising capital as MBIA is hoping to
do will not be easy, citing rival Ambac Financial Group's failed attempt to
raise $1 billion in equity earlier this month.
Raising new funds probably won't be made any easier either by Tuesday's
statement by Connecticut State Attorney General Richard Blumenthal that his
office has issued subpoenas to all major rating agencies and bond insurers as
part of an investigation of industry practices related to subprime mortgage
While none of the financial institutions receiving subpoenas
were named, Blumenthal did specifically say that MBIA and Ambac were among those
receiving the legal notices.
In an interview reported by Reuters on Tuesday Blumenthal said his office is
investigating the role of investment banks in "problematic practices in
the ratings and securities areas."
"We have an investigation relating to possible wrongdoing involving the
bond insurers and mortgage lenders and also the investment banks, seeking to
know whether people buying securities backed by mortgage debt may have been
misled by failures to disclose relevant facts on the risks involved," said
Blumenthal's announcement in turn came on the heels of another disclosure
from the Federal Bureau of Investigation (FBI) that it is looking into the activities
of 14 financial institutions who are caught up in subprime mortgage losses.
None of the companies was identified by the FBI but the guessing game has begun.