How Bad Will MBIA Earnings Be? (MBI, ABK, PMI, MTG)

MBIA Inc. (NYSE: MBI) is set to report earnings Tuesday,  before the market opens.  As the market has slid further, this troubled “guarantor” has gone with it and has again hit new 52-week lows this morning.

The prior 52-week range was $2.51 to $19.08, and it hit reached $2.42 this morning.  This was over a $60.00 stock in 2007.  It is hard to imagine that this beaten and battered stock has much influence or relevance any longer, but it still is followed.
Analysts have essentially quit serious coverage of the company.  The one commonality among their forecasts is losses.  Wide losses.  You may see a grossly different number “from operations” than on a net earnings basis.  To show what we mean here, the trailing 12-month loss is about $19.66 EPS on a net basis.

Investors will have to focus on the “pending developments” more than they will the numbers.  The numbers would make even the toughest bull cry.

MBIA has established a new U.S. public finance financial guarantee insurance company.  This was handled via restructuring its principal insurance subsidiary, MBIA Insurance Corp.  MBIA Insurance Corp. of Illinois’ stock was transferred by MBIA Corp. to a newly established intermediate holding company.  This operating structure will facilitate both transparency and capital raising efforts. MBIA Insurance Corp. of Illinois is expected to be renamed National Public Finance Guarantee Corporation

This company is trying to transform itself.  And we would focus on the “Trying” rather than “Transforming” part of the equation.  Where this becomes almost impossible to evaluate is on its balance sheet.

If you were evaluating this as a new company based upon its latest balance sheet, the discounted stock would seem an enticing value in this market.  The problem is that no one trusts its earnings.  Are assets really assets?  What are the real cost of liabilities?

This stock  usually trades more than 6.6 million shares per day.  An exponentially larger number of  shares may trade after the earnings report.  Investors should expect Ambac Financial Group, Inc. (NYSE: ABK), PMI Group Inc. (NYSE: PMI), and MGIC Investment Corp. (NYSE: MTG) to move in sympathy with MBIA.

Jon C. Ogg
March 2, 2009