Friday, May 16, 2008

Monoline Hijinks

"Back in the dot-bomb days, companies liked to guide investors to rosy variations of their stated profit. These profit figures became known as EBBS, or 'earnings before bad stuff.' ... MBIA ... prefers a metric it calls 'analytic adjusted book value' that 'provides an economic basis for investors to reach their own conclusions about the fair value of the company.' ... So MBIA's variation on book value excludes things like the $3.5 billion mark-to-market loss on derivatives that drove its $2.4 billion net loss in the first quarter. Rather, it includes management's expectations of losses, plus gains from future expected premium payments. ... Investors shouldn't forget the lessons of the Internet-stock bubble; they should stick to figures the company compiles according to generally accepted accounting principles. On the basis of that $8.70-a-share figure, the stock, even at its current level [$9.85], isn't a bargain", David Reilly (DR) at the WSJ, 13 May 2008.

"When you shop for groceries, the checkout clerk asks, 'Paper or plastic?' When your broker calls to sell you municipal bonds in the depths of the credit crisis, he should ask, 'Insured or uninsured?' Your correct answer: 'Uninsured, and what is the credit rating?' ... We who manage municipal portfolios care a lot about credit ratings and give credence to insurance from just three firms: Financial Security Assurance, which carefully managed its exposure to CDOs; Berkshire Hathaway, the new insurer on the block; and, to a lesser extent, Assured Guaranty, which just received an infusion of capital from W.L. Ross & Co. ... For months now, good-quality uninsured municipal bonds, A-rated or better, have yielded less than insured ones. The fact is, no one in the business gives any value to the insurance coverage, and you shouldn't either", my emphasis, Marilyn Cohen (MC) at Forbes, 19 May 2008.

I agree with DR, MBIA's creating its own metrics reeks of the dot-com bust. Investors, beware. MBIA CFO C. Edward Chaplin is pushing his own metric. I did a google search to see when Chaplin last filed a Form 4, it was 15 February 2007, when he bought 20,181 MBIA shares at $70.86 each or $1,430,026. Has he taken a beating. Let's take up a collection for him.

MC gets it. See my 16 February 2008 post, among others.

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