Thursday, January 31, 2008

MBIA: Triumph of the technocrats?

(Felix Salmon) In the battle of Bill Ackman vs MBIA, the market seems to be speaking quite clearly: MBIA is winning, if only by sheer force of boredom. Ackman's manifesto might be forcefully written, but MBIA's stock has soared from an opening level of $11.80 to a $15.43 now, something over 110 minutes into one of the longest conference calls I've ever had the misfortune to listen to (slides here). That's an intraday rise of more than 30%.

MBIA's big idea seems to be that the credit-default swaps that they write don't behave like the credit-default swaps that banks write: crucially, they can't be accelerated, except by MBIA, which means that any claims will trickle out rather than having to be paid all at once. But even if that addresses questions over liquidity, it doesn't address concerns about solvency. And the CFO's attempts to show lots of excess capital were pretty unconvincing, given the fact that he was being forced to second-guess the level of capital that the ratings agencies may or may not require going forwards.

It is possible, however, that MBIA has managed to turn a corner today. Its entire market capitalization is less than $2 billion, it announced a quarterly loss of $2.3 billion in the dead of night, and its share price is soaring as a result. Could this be a massive short squeeze? Yes. On the other hand, this could be the triumph of the dull technocrats over the swashbuckling hedge-fund managers.

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