NEW YORK (Dow Jones)--Bond insurer MBIA Inc. (MBI) said Tuesday that net income declined 14% during the second quarter to $188 million while premium income dropped 19% from the same period last year.
The Armonk, N.Y.-based company, which insures the timely payment of interest and principal on hundreds of billions of dollars of bonds, attributed the declines to an "easy" credit market environment in which investors were more willing to take risk.
Nicholas Ferreri, MBIA's chief financial officer, said the market had "a skewed perception of risk" with investors looking to take additional risk to pick up yield. That results in fewer issuers needing insurance for their bond offerings.
"Greed is surpassing fear," Ferreri said on a conference call to discuss the second quarter with analysts. "We prosper when fear governs."
Second quarter earnings per share declined to $1.37 from $1.49 a year ago, above expectations for earnings of $1.34 a share, according to analysts surveyed by Thomson First Call.
Premiums were down 28% to $144 million in the company's U.S. public finance business and down 44% to $57.5 million in its overseas public finance business in the second quarter, MBIA said.
Structured finance premiums dropped 15% in the U.S. to $33 million but rose by 42% to $94.4 million overseas.
"The environment is tough," said Geoffrey Dunn, analyst with Keefe Bruyette & Woods in New York. "They're growing where they can but not growing for the sake of growth."
To protect the triple-A rating of its insurance unit, MBIA's policy is to take minimal risk when insuring debt.
One positive for shareholders is that the company continues to manage its capital base by buying back shares, Dunn said.
MBIA repurchased 2.4 million shares during the quarter and has purchased 10.5 million shares over the last 12 months.
MBIA's holding company is awaiting approval from New York State Insurance regulators to take a special dividend from its regulated insurance unit. A previous dividend, in December 2004, of $375 million, was used in part to repurchase shares.
It's possible that the delay in the approval may be related to ongoing investigations of MBIA by regulators, Ferreri said.
The Securities and Exchange Commission, the New York State Attorney General and the Justice Department have issued subpoenas to MBIA. Among the issues being reviewed is MBIA's use of so-called finite reinsurance to mitigate losses related to bonds it had insured for a Pennsylvania hospital chain that filed for bankruptcy protection in 1998.
The company said there was no indication that the ongoing investigations were harming its business prospects, though they had led to an increase in expenses.
MBIA recorded $37 million case losses for the first half of the year. Those losses were attributed mainly to tax lien securitizations completed in the late 1990s and exposure to Fort Worth Osteopathic Hospital in Texas, which failed last year. The company also took losses on a mortgage-backed securities transaction.
MBIA shares were recently quoted down 14 cents, or 0.2%, at $60.06. |
