A Profitable MBIA... The Possible Impossibility (MBI, ABK)

MBIA Inc. (NYSE: MBI) was on our schedule to report earnings tomorrow, but the troubled and former largest bond insurer somehow managed to post a profit for the quarter.  We expected a loss, although estimates on this company are now so thin and wide apart that we hesitate to use them.  The company posted net income of $696.706 million on revenue of $1.929 billion, versus a loss of $2.4 billion and negative revenue of -$2.942 billion in the year-ago period.  The move is strong enough that it even has Ambac Financial Group, Inc. (NYSE: ABK) higher on the news).

If you want to know how this scores up, it is net income of $3.34 EPS versus a loss of -$12.92 EPS in the same period in 2008.  That is based upon 208,504,957 shares at the end of Q1-2009 and based upon 186,319,894 shares for the same period in 2008.

On a per share basis, MBIA earned $3.34 in the quarter, compared with a $12.92 per share loss last year.

Be advised that the “legal proceedings” is rather lengthy because of all of the problems it has had before. Also, advised that the company stated that its net income in the first quarter was primarily driven by $1.6 billion in pre-tax unrealized net gains from mark-to-market on insured credit derivatives.

The company’s total assets carried were listed as $27.907 billion versus $29.657 billion in the year-ago period; the liabilities are listed as $26.267 billion versus $28.635 billion in the year-ago period.

There is still very little new operation in much of its business.  The company said that it “is no longer insuring new credit derivative contracts except in transactions related to the reduction of existing derivative exposure. Currently, the global structured finance market is generating very little new business, and it is uncertain how or when the Company may re-engage this market.”  The company also noted that there is a substantial liquidity risk for the company.

MBIA also claimed an adjusted book value of $37.61 as of March 31, 2009 compared with $40.06 at December 31, 2008.  It then listed its book Value per share as of March 31, 2009 was $7.76, as compared with $4.78 at December 31, 2008.  This increase was listed as being “primarily attributable to net income in the quarter resulting from unrealized net gains on insured credit derivatives partially offset by loss and loss adjustment expenses on insured exposures and realized losses in the Company’s ALM asset portfolio.”

Shares are trading up 15% and close to $8.00 after closing at $6.96 today.  Its 52-week trading range was $2.17 to $19.08. For much of 2007 and part of 2006 this was a $60+ stock.

Shares of Ambac Financial Group, Inc. (NYSE: ABK) are up 12% at $1.96 in the after-hours session, and that is on the heels of a 8.7% gain today after its own earnings showed a loss of $392 million.

JON C. OGG