MBIA finally answers the question
By Herb Greenberg, CBS MarketWatch.com
Last Update: 10:54 PM ET Nov. 23, 2004
SAN DIEGO (CBS.MW) -- MBIA, the saga continues: The company finally answered my question Tuesday, though not directly or personally.
As you may recall, in a recent column I asked the bond insurer about the recent subpoenas from the New York attorney general and the U.S. Securities and Exchange Commission.
MBIA had said the subpoenas dealt with "non-traditional or loss mitigation insurance products developed, offered or sold by MBIA to third parties" starting in 1998.
MBIA (MBI: news, chart, profile), however, does little in the way of offering loss mitigation insurance or reinsurance to third parties -- at least, it doesn't talk much about it. So I asked for clarification: whether the subpoenas were dealing with the reinsurance MBIA offers or that it bought.
Enter Tuesday's press release, headlined, "MBIA provides additional information regarding subpoenas."
According to the press release, in a call "made by the Company to the SEC," regulators "indicated" the investigation would include reinsurance bought by the giant bond insurer in September 1998 after the Allegheny Health, Education and Research Foundation had filed for bankruptcy. MBIA had insured Allegheny's bonds. As I've written extensively (and exclusively), the reinsurance -- bought retroactively -- helped MBIA avoid taking a loss of $170 million.
Now, as we suspected all along, the questionable transaction will be part of the SEC's probe. Risk transfer is key to whether the deal was appropriate, as MBIA says. The question is whether the risk transfer was in keeping with the spirit of accounting or merely to create the perception of risk transfer. At least now somebody more than a lowly columnist is asking the questions.
Meanwhile, the company still hasn't answered my question about the timing of receiving the subpoena relative to its decision to disclose it. As previously reported, the company waited three hours until the market's close last Thursday to say it received the subpoena. As it so happens, that was nearly 24 hours after announcing that it had priced $350 million in notes. |
