Fitch Downgrades Debt Insurer MBIA Over Capital Levels

MBIA Loses AAA Insurer Rating From Fitch Over Capital
Christine Richard

April 4 (Bloomberg) -- Fitch Ratings cut MBIA Inc.'s insurance unit to AA from AAA, saying the bond insurer no longer has enough capital to warrant the top ranking.

MBIA, the world's largest financial guarantor, would need as much as $3.8 billion more in capital to deserve an AAA, New York-based Fitch said today in a report. The outlook is negative, Fitch said.

Fitch issued the new, lower rating even though Armonk, New York-based MBIA asked the ratings company last month to stop assessing its credit worthiness. The two companies disagree over how much capital MBIA needs to absorb losses on the bonds it insures. Moody's Investors Service and Standard & Poor's both affirmed their AAA ratings earlier this year.

''It will be difficult for MBIA to stabilize its credit trend until the company can more effectively limit the downside risk'' from collateralized debt obligations, Fitch said.

The long-term rating of MBIA Inc. was cut to A from AA, Fitch said.

''We respectfully disagree with Fitch's conclusions,'' MBIA Chief Financial Officer Chuck Chaplin said today in a statement. ''MBIA has a balance sheet that is among the strongest in the industry with over $17 billion in claims-paying resources, and has a high quality insured portfolio.''

MBIA shares closed down 68 cents, or 4.8 percent, to $13.61 in New York Stock Exchange Composite trading. The stock has declined 27 percent this year.

Capital Raising

MBIA raised $2.6 billion in capital through a bond offering and the sale of a stake to Warburg Pincus LLC, eliminated its dividend and stopped guaranteeing asset-backed securities for six months.

Those decisions prompted Moody's and S&P to keep their top ratings for MBIA. Fitch continued its review. Fitch has rated MBIA's insurance unit since at least 2000, according to data compiled by Bloomberg. S&P and Moody's have rated the company since at least 1987, the data show.

MBIA last month asked Fitch to stop rating the company because it disagreed with the ratings company's requirement that MBIA hold more capital.

MBIA, which started as the Municipal Bond Insurance Association in 1974, and the rest of the bond insurers stumbled after expanding into CDOs that caused losses of more than $7 billion. CDOs repackage pools of assets into securities with varying degrees of risk. The company previously recorded at least 15 years of consecutive profits insuring bonds sold by schools, hospitals and municipalities.

''It's tough for a rating agency to downgrade a bond insurer, to take away the AAA rating,'' said Mark Adelson, founding member of Adelson & Jacob Consulting in Long Island City, New York.

Holding Company

The capital MBIA raised has yet to be contributed to its insurance company and could be diverted to meet obligations at the holding company, Fitch said in its report. MBIA's holding company engages in transactions that may require it to post collateral, creating a rising demand for cash, Fitch said.

MBIA's suspension of its structured finance business, which includes CDOs and asset-backed securities, may help to boost the company's rating back to AAA in the future, Fitch said today.

MBIA will have losses on CDOs backed by subprime mortgages of as much as $4.9 billion after taking into account that they will be paid over time, Fitch said.

The analysis assumes that subprime mortgages backing securities sold in 2006 will experience losses of 21 percent and those originated in 2007 will lose 26 percent, Fitch said. Subprime mortgages are given to borrowers with poor credit.

To contact the reporters on this story: Christine Richard at crichard5@bloomberg.net

Jobs Numbers Revised Back to 2003: Confirm Recession

You may have missed this in today's Jobs Report, but when we started to update our Excel spreadsheets with the jobs data we noticed that the Bureau of Labor Statistics has revised the Jobs Data. It was not the usual revision back a month or two. It went back all the way to early 2003.

Admittedly they could have worked this revision in February or even January, since we don't often go back into prior years to look for major changes. But the fact remains that the data has been significantly revised, and downward.

We're working with really large numbers here overall, and its hard to see these changes in graphs. We're not sure its even worth looking at the monthly changes in the graphs.

What is important is the TREND. And the revised numbers showed a significant confirmation in the downtrends, that our 12 Month moving average has been showing since the beginning of last year.

The US is in a slowdown. More precisely, the US entered an economic recession in the first quarter of 2008 at the latest, and perhaps the fourth quarter of 2007. We'll say what Nouriel Roubini probably wishes he could say: anyone who says we are not in a recession now is either a stooge or merely ignorant.

Look for the Wall Street and government spin to shift from denying that we are in recession, to a new slant that we are in recession but its now half over and its time for stocks to start pricing in recovery in the second half of the year.

Let's see if the President's Working Group can keep stocks propped up to give the average Joe the impression that things are not so bad.

There is only one play in this current team's playbook: fraud - bubble - bust. Because that's all that they know how to do.

They don't know how to facilitate a productive economy to build genuine prosperity for the nation. For the most part they have never created anything worthwhile in their lives, but lived off the labor of others. But they do know how to enrich a few of their cronies, and to deceive, inflate and try to patch the mess once the bubble they created breaks. At least so far.

And here's a report on the Jobs number from John Williams over at Shadow Government Statistics.

March Payroll Decline Easily Topped 120,000

When a Fed Chairman begins talking recession, a recession is in place. Chairman Bernanke's comment on Wednesday that the U.S. economy "even could contract slightly" in the first half of 2008 was more reporting than a prognostication. He certainly had an advance idea of the March employment data that now show a decline in average first-quarter 2008 payrolls versus fourth-quarter 2007, where seasonally-adjusted March 2008 payrolls are down at an annualized 0.7% rate from December 2008.

Despite the bad news in the monthly jobs data, the reported numbers still were overly Pollyannaish, thanks to extreme gimmicking. As anticipated, the industrial production benchmark revisions showed considerably weaker economic activity than previously reported, while the purchasing managers survey again showed a deepening economic contraction and surging inflation.

Also on the inflation front, money supply M2 continued to surge in the latest weekly reporting up a seasonally-adjusted, annualized 24.3% in the week ended March 24th, with annual growth in March M3 now a fair bet to top 17.2%, up from the 16.9% historic high set in February. The money supply numbers will be updated over the coming weekend on the Alternate Data tab at www.shadowstats.com, after tonight's data releases.

Jobs Data Should Continue Fueling Recession Forecasts.

The reported third consecutive decline in monthly payrolls, as of March, will do much to reinforce recession outlooks, but the data remain severely gimmicked, understating the monthly declines in payroll employment, thanks to the usual statistical shenanigans at the Bureau of Labor Statistics (BLS). Net of gimmicks, the decline in payrolls and the rise in the unemployment rate were statistically significant......

Seasonal-Factor Gimmicks.

Year-to-year growth should be virtually identical in both the seasonally-adjusted and unadjusted series, and applying the unadjusted annual change to the seasonally-adjusted year-ago numbers for February and March suggests that the seasonally-adjusted month-to-month change should have been a contraction of 124,000. This reporting gimmick is made possible by the "recalculation" each month of the monthly seasonal factors. If the process were honest, the suggested differences would go in both directions. Instead, the differences almost always suggest that the seasonal factors are being used to overstate the current month's relative payroll level, as seen last month and the month before....

Household Survey.

The usually statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (including those of multiple job holders), showed household employment dropped by 24,000 in March against a 255,000 decline in February.

The March 2008 seasonally-adjusted U.3 unemployment rate showed a statistically-significant increase to 5.08% +/- 0.23% from 4.81% in February. Unadjusted, U.3 held at 5.2% in March. The broader U.6 unemployment rate rose to an adjusted 9.1% (9.3% unadjusted) in March, versus 8.9% (9.5% unadjusted) in February. Adjusted for the "discouraged workers" defined away during the Clinton Administration, actual unemployment, as estimated by the SGS-Alternate Unemployment measure, rose to 13.0% in March, up from 12.8% in February....

Purchasing Managers Surveys Show Inflation and Recession.

The stock market truly is irrational if it rallies sharply on a minor upswing in a still-negative purchasing managers survey (manufacturing in March was 48.6 versus 48.3 in February). The alternatives are that either silly hype can rally these extremely vulnerable markets, or that some analysts have a compulsion (or real need) to explain all market movements in terms of any published news, regardless of actions or market manipulations by major players and/or government/Fed. Both factors likely are at play....

Bernankian Rhapsody

Sung to Queen’s Bohemian Rhapsody
(hat tip to Bill Murphy at Lemetropole Cafe for concept)

Is this the real price?
It is just fantasy.
Mark it to model
But watch out for FASB,

Opened my eyes,
Looked at your buys and see,
You're just a poor Bear
Triple A casualty

Because you bought it high, sold it slow,
Rated high, values low,
Any way the spreads go
Doesn't really matter to me, to me...

Obama - just killed a Fund
Let the market run ahead
Cut too slowly, now it's dead,
Obama - I had just begun
These foreign banks have blown my dreams away

Obama - oooh ~~~~~
I still wanna try
I sometimes wish I'd never left Princeton at all.
Carry trade, I'm afraid, its going to K-winter....

[Musical Interlude]

I am the little silhouetto of a man
Hammer Hank! Barney Frank! Can you save my appointment?
Midnight calls they want my balls - very very frightening -- please!
SP's tanking, so frustrating,
Cramer called, he's menstruating,
Brokers deeply into blow -
Where's Gasparino! oh 0h 0h....

I'm the death of subprime, nobody loves me
He's the death of packaged debt, perma-bullish fantasy
Spare us we pray from this monstrosity.

Easy come easy go, Paulson wants to know,
Gold Repos! No - you will not let them go - not let them go!
Spot Silver! No - you will not let it go - not let it go!
The Dollar! We will not let it go - not let it go!
Will not let rates go, not let them go!
Won't take Funds down below, crack Zero!
No, no, no, no, no, no, no, -

Obama mia, set me free-ya, Obama please just keep me on
Sir Alan had this devil put aside for me
For me, for me, for me

So you think you can fund Bear and spit in the Democrats' eye?
And cross swords with Schumer and leave Timmy twisting to die?
Obama - can't do this to me Obama
Just keep me on - your party wants my butt out of here!

Moral hazard doesn't matter,
Anyone can see,
I want to keep the Fed chair -- no price really matters to me

Any way the wind blows.....