Have you read anything positive about MBIA recently? The short-sellers – principally Bill Ackman, of course, but also Whitney Tilson – have been dominating the conversation, and since they’ve also been making a huge amount of money one can understand why.
Which is why it’s refreshing to see Jonathan Laing’s piece in Barron’s saying that MBIA is a screaming buy at these levels. Yes, the company might have huge liabilities, he says. But those liabilities are spread out over the life of extremely long-dated bonds: if MBIA wraps a 30-year bond which defaults, it only needs to make up the coupon payments on that bond – not the difference between the value of the bond and par value.
As a result, says Laing, MBIA’s maximum actual cash losses are decidedly modest:
Before Warburg cut its deal with MBIA it brought in outside consultants to stress-test the company’s portfolio, subjecting it to Armageddon-like housing and other economic assumptions. It found that annual loss expenses — actual checks written — came to no more than about $250 million a year under the harshest of conditions.
Against that there’s a liquidation value of over $30 per share, according to Laing (the stock closed last week at $8.55); there’s a revenue stream of over a billion dollars per year even if MBIA loses its triple-A credit rating and writes no new business at all; and, if it does manage to retain its triple-A, there’s the added market share that it will manage to snaffle as a result of the implosion of Ambac.
Now I am, I think, just about the only financial journalist in the world who hasn’t received a copy of Bill Ackman’s famous slide show explaining why MBIA is toast. So I’m definitely not qualified to adjudicate this particular dispute. And it seems pretty unlikely that MBIA stock is going to rise on Tuesday, given the meltdown in global stock markets that seems to be going on right now, led by the financials.
But I’m not gong to be here to see it: Tuesday is a day of travel for me, since the World Economic Forum kicks off bright and early on Wednesday morning with the annual economists’ panel, featuring not only my former boss Nouriel Roubini but also one of my heroes, Ngozi Okonjo-Iweala, among illustrious others. Expect this blog to be quiet on Tuesday, and then very Davos-centric for the rest of the week.