Oct. 25 (Bloomberg) -- MBIA Inc., the world's biggest bond insurer, plunged the most in 20 years after the company reported its first loss, ended a share buyback and failed to quell speculation it will write down more of its mortgage portfolio.

The company today reported a $36.6 million loss after reducing the value of the securities it guarantees by $342 million. Chief Financial Officer Chuck Chaplin told investors the company will stop buying its shares because it needs to conserve capital, helping stoke concerns that more asset mark downs may be ahead.

MBIA, based in Armonk, New York, and Ambac Financial Group Inc., the world's second-largest bond insurer, both reported their first losses in the third quarter as the prices of mortgage securities they guaranteed declined. The insurers write derivative contracts promising to pay holders in the event of a default. The value of the securities plummeted after subprime delinquencies soared.

``People began to question the viability of the business model and the tremendous credit exposure that MBIA has taken on to a wide range of structured credit risks,'' said David Einhorn, president of Greenlight Capital LLC in New York, who has short position on the stock.

The stock fell $8.20, or 15 percent, to $46.99 in New York Stock Exchange composite trading, the biggest fall since Oct. 25, 1987, and earlier dropped as much as 21 percent.

MBIA also said a $1.8 billion structured investment vehicle it runs is having trouble raising money and is seeking alternative funding.

More Writedowns?

Executives failed to assuage concerns that the company may need to take more writedowns. Merrill Lynch & Co. yesterday wrote down the value of asset-backed securities by $7.9 billion, driving the firm to the biggest loss in its 93-year history and heightening worries about the slumping value of mortgage debt.

Ambac, MBIA and other bond insurers have guaranteed billions of dollars of AAA rated collateralized debt obligations that are backed by low investment-grade rated portions of mortgage-backed debt. The Merrill Lynch writedown included $3.1 billion related to such securities.

``I'm still trying to understand how the guarantors can take such low levels of mark-to-market losses relative to what the rest of the Street is taking on securities,'' said Ken Zerbe, an analyst with Morgan Stanley in New York said during the call.

Quarterly Loss

MBIA's third-quarter net loss was 29 cents a share, the company said in a statement. Excluding the markdowns, profit was $1.52 a share, short of the average analyst estimate for $1.59, a Bloomberg survey shows. The loss compared with net income of $217.9 million, or $1.59, a year earlier.

Prices of the securities have dropped partly because of selling by structured investment vehicles, which rely on commercial paper to finance portfolios of longer-term securities. SIVs are in a funding crisis as money market investors balk at buying securities that could be backed by subprime mortgages.

MBIA will stop its stock buyback because of the weakness in the housing and structured finance markets, and, potentially the economy, CFO Chaplin said on a conference call with investors.

``Going into a period of uncertainty we think it's critical for our balance sheet strength to be unquestioned,'' Chaplin said.

MBIA repurchased 1 million shares in the third quarter at an average cost of $61.23, and has $340 million left under a $1 billion buyback program, the company said in the statement.

MBIA SIV

MBIA said today that a SIV it manages is seeking alternative financing after having difficulty funding itself in the asset- backed commercial paper market. MBIA said it manages the $1.8 billion invested in Hudson-Thames Capital Ltd., which sells short-term debt to finance purchases of longer-dated securities and profits on the difference. MBIA has invested $15.8 million in the Hudson-Thames capital notes. It has no obligation to provide liquidity support or guarantees.

MBIA set up Hudson-Thames late last year through its asset management business. MBIA hasn't guaranteed debt issued by the SIV. MBIA does own 12 percent of the SIV's capital notes. MBIA spokeswoman Liz James declined to comment on the SIV's finances.

``MBIA has franchise risk,'' said Sean Egan, managing director of Egan-Jones Ratings Co., an investor-compensated rating company in Haverford, Pennsylvania. As the owner of the world's largest AAA rated bond insurance company, ``MBIA is in the business of selling confidence,'' he said.

The three biggest U.S. banks announced a plan earlier this month to set up a fund that would buy assets from SIVs, preventing the sponsors from having to take the securities and liabilities on to their own balance sheets or selling off the holdings at fire sale prices.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.

To contact the reporter on this story: Christine Richard in New York at crichard5@bloomberg.net

Last Updated: October 25, 2007 16:50 EDT