MBIA posted a Q1 loss of $2.4 billion. The company wrote down another $3.58 billion on credit default swaps (CDS) written against subprime CDOs. Moody's had recently raised $2.6 billion in capital. So a nice wash here. CEO Jay Brown had told shareholders on May 6 that the firm had adequate equity capital and did not need to raise anymore. Some how I have a feeling they won't have to worry about raising more capital. No one in their right mind would give it to them! Additionally, just for giggles, MBIA has a tax deferred asset of $2.9 billion. If you remember (or read the previous post "Hey Laing, Where's Your Suit??!!") Ambac has a similar asset. You need lots of profits in future years (20 I believe) to carry this asset without a reserve. Like Ambac, I don't think MBIA is going to make a cumulative $8bb in net pre-tax income in the next 20 years. This asset needs to be written down...sharply.
With regard to valuing MBIA's exposure to CDS going forward, CEO Brown said, "This valuation task is clearly one that stretches the ability of mere mortals." Holy crap!