>> MBI is one of my core shorts, with the idea that defaults and other implosions are going to hurt it badly over the next year.<<
I agree. May want to look at ABK. Short that I'm building a position in. MTG is another but have no current position. TOL, HOV and CTX are my current shorts in homebuilders. Small position in each. Could not get any more HOV shares to short last time I tried.
NOland had this to say about MBI last weekend:
>>>Credit insurer MBIA reported earnings this week. The company saw “Net Premiums Written” jump 26% y-o-y (up 6% sequentially). Of the total $41.2 billion of gross “Par Value Insured” (new insurance written), $23.6 billion, or 57%, was insuring “Global Structured Finance.” MBIA saw “Net Debt Service Outstanding” (gross insurance written less risk ceded) increase $22 billion during the third quarter (12% annualized) to $764 billion. This compares to the second quarter’s $14.8 billion and last year’s third quarter growth of $1.4 billion. Interestingly, it was the company’s strongest growth since the (infamous) fourth quarter of 1998. When the financial markets falter and risk aversion escalates, it helps tremendously that MBIA and the Credit insures can step up to the plate and transform risky debt into palatable securities. This mechanism has, over time, developed into a key mechanism (along with GSE Credit creation and guarantees) to sustain Credit excess. The day these mechanisms don’t work…
It is simply difficult to fathom that MBIA’s “Net Debt Service Outstanding” is up more than 10-fold since 1987. It is also worth mentioning that MBIA saw total assets increase by $1.8 billion during the quarter, an annualized growth rate of 44%. Assets grew at a 26% rate during the second quarter and are up 16% y-o-y. Peddle to the metal, as if one drives fast enough they can outrun the storm. The company repurchased 1.7 million shares of stock during the quarter, increasing year-to-date purchases to 3.4 million shares.
Well, we no longer ponder how CDO issuance could remain so strong despite heightened Credit quality issues: MBIA (along with Ambac) is aggressively insuring CDO structures (turning water into wine). Year to date, MBIA has written insurance on $28.9 billion of CDO exposure. This compares to $13.6 billion last year, almost doubling total CDO exposure to $65.9 billion (MBIA ended 1999 with total CDO exposure of $2.3 billion). MBIA concluded the quarter with a “Global Structured Finance” “Insured Portfolio” of $167 billion. In addition to the CDO exposure, the company has insured about $35 billion of asset-backs (mostly Credit card and auto loan-backed), $21 billion of home equity loans, about $20 billion of other mortgage-backed, almost $20 billion “Pooled Corp. Obligations & Other, and $5 billion of other “Financial Risk.”
MBIA also provides a list of its “Insured Portfolio – 50 largest Structured Finance Credits.” Leading the list is Providian Gateway Master Trust at $2.8 billion, with Metris Master Trust number two at $2.5 billion. Included in its list of the “Top 25 Structured Finance Servicer Exposures” are the likes of Providian Financial Corp, Capital One Financial Corp., Union Acceptance Corp., AmeriCredit Corp., Household International, and Ocwen Financial Corp. The Credit insurers have developed into key players in the increasingly fragile Consumer Debt Bubble and, regrettably, critical business partners in subprime lending. The “financial guarantor” business has changed a great deal since the days of insuring municipal bonds. The risk profile of these companies – with the nature of Credits insured and recognizing we live at the very late stage of the Credit boom cycle – is not even recognizable compared to years past.<<<
Joe
AI
