And, more importantly, why is the stock up so much today? I can't make heads or tails of the below description. Any common sense explanation of what this company actually does would be greatly appreciated. *** MBIA, Inc., through its subsidiaries, provides financial guarantee insurance and credit protection products, as well as investment management services to public finance and structured finance issuers and investors, and capital market participants worldwide. It operates through two segments, Insurance and Investment Management Services. The Insurance segment issues financial guarantees for municipal bonds, asset-backed and mortgage-backed securities, investor-owned utility bonds, bonds backed by publicly or privately funded public-purpose projects, bonds issued by sovereign and sub-sovereign entities, obligations collateralized by diverse pools of corporate loans, and pools of corporate and asset-backed bonds in the new issue and secondary markets. It also insures credit default swaps on pools of collateral, as well as provides asset/liability products, which include investment agreements and medium-term notes not related to the conduit programs; advisory services, which consist of third-party and related-party fee-based asset management; and conduit programs. The Investment Management Services segment offers cash management, discretionary asset management, and fund administration services, as well as investment agreement, medium-term note, and commercial paper programs related to funding assets for third-party clients and for investment purposes. Its products and services are provided to the public, not-for-profit, and corporate sectors. MBIA was founded in 1973 and is headquartered in Armonk, New York.
During a healthy economy, bonds don't default. MBI keeps all of the insurance premiums it has collected. When a lot of defaults happen simultaneously, MBI implodes. Lawyers for the various bondholders fight over what's left to pay off their clients.
MBI is trying to float some bonds but they have a 14% coupon.... what's interesting is the common stock is up 3 bucks.... who said the market had to make sense
Back in the day, when I was a broker, it was always an easy pitch to tell someone "It's MBIA insured, AAA, - you need a CD paying 8% to equal this tax-free bond." MBIA, long-term, will be fine - their sub-prime exposure was pretty limited.
Thanks, all. Makes sense now. I think I'll follow Buffet's advice and avoid something I know squat about.
14% coupon reminds me of the good ole junk bond days of the '80s is MBIA even going to earn the cost of capital???
Pretty hard to see how vanilla bond insurance would make significantly more than a 14% ROI. And that's before you factor in the competition from Buffett, who has a pristine balance sheet. IMO this issue is just to keep them solvent, avoiding any potential liquidity crunch in the next year or so. A prudent move - better to pay 5% premium on a few bill in order to stay afloat, than risk the whole company imploding.