Remember how I liked the way that new MBIA CEO Jay Brown writes letters? Well he’s gone one better now, and actually started leaving comments on blogs – or at least a comment on Floyd Norris’s blog. Norris didn’t like the fact that Brown essentially fired Fitch Ratings, and Brown gave him a serious response, explaining that in many ways Fitch was too lax, not too loose:
Fitch’s capital allocation estimate for Public Finance is approximately half that of the other rating agency capital models — and we believe this level of capitalization at the Triple-A level is inappropriate and would pose a serious financial threat to policyholders if a company could obtain such a low grade triple-a rating…
Fitch’s capital model for financial guarantee insurance companies presents severe operational challenges for capital planning and pricing of our product. We need to plan for decades and their model makes it difficult to plan even a year at a time
Brown’s letter is a model of clarity compared to the official MBIA press release, which happily descends into legalese talking about "the Company’s legal entity alignment," and which is generally very hard to understand.
It’s also worth reading Brown’s letter to Fitch, which makes two points that Brown doesn’t feel the need to make in the comment on Norris’s blog: firstly that MBIA doesn’t particularly want to pay for Fitch rating MBIA’s structured products when MBIA has announced a moratorium on writing those products; and secondly that Fitch’s costs are skyrocketing.
We can no longer justify the high
cost of the Fitch Insurer Financial Strength rating. The fee proposal you gave us is
three times the amount you charged in 2005 – a rate of growth well in excess of
similar fees charged by the other major rating agencies.
The overall impression one gets from Brown is that he’s fighting hard, but fighting fairly, on behalf of his company. Should he have fired Fitch? Norris thinks not, and Herb Greenberg, too, thinks the decision was foolish. But there’s no doubt that the way that Brown responds to such criticism is exemplary.