Jan. 31 (Bloomberg) -- MBIA Inc. Chief Executive Officer Gary Dunton said the world's largest bond insurer has more than enough capital to keep its AAA credit rating and dismissed speculation the company may go bankrupt.

Dunton and other executives spent four hours on a conference call for investors today defending their company and the guaranty industry, blaming ``fear mongering'' and ``distortion'' for driving MBIA's stock down more than 80 percent in the past year.

``It's very difficult to see the reputation of a company you love coming under fire,'' he said on the call, held after Armonk, New York-based MBIA reported a $2.3 billion fourth-quarter loss. ``The ground has literally opened up below us in the industry.''

MBIA is in the best position among its peers to survive the losses and downgrades on securities the industry guaranteed, Dunton said. MBIA's capital raising efforts will exceed the requirements necessary to keep its top credit ranking at Moody's Investors Service, he said, adding that speculation about MBIA's holding company liquidity risk is ``nothing further from truth.''

Bond insurers are now divided into those in ``the main house, the dog house and the outhouse,'' Dunton said. MBIA is ``in the dog house earning our way back,'' he said.

Dunton's comments helped alleviate concerns that the company would lose its top ranking, driving MBIA up 11 percent in New York Stock Exchange trading and fueling a rally in the Standard & Poor's 500 Index. Without the AAA stamp, MBIA's business would be crippled and ratings on $678 billion of securities would be thrown into doubt.

MBIA, which fell more than 15 percent in early New York trading, finished the day up $1.54 at $15.50. The S&P 500 gained 22.74, or 1.7 percent, to 1,378.55.

`Taking the Microphone'

MBIA only allowed questions on the conference call today to be submitted in advance through e-mail. This was MBIA's way of ``taking the microphone away'' from people who had ``abused the privilege and ranted'' in the past, Greg Diamond, head of investor relations said on the call. These people had become adversaries, Diamond said, without naming anyone specific.

The stock has been battered by investor concerns that MBIA might not have enough capital to cover losses on its guarantees, as well as by questions from hedge fund manager William Ackman as to whether the company had been completely forthcoming about its exposure to the slumping subprime mortgage market.

Short interest in MBIA was 46 million shares as of Jan. 15, almost triple that of a year earlier as hedge funds including Ackman's Pershing Square Capital Management LP made bets on the stock declining further. Short sellers sell borrowed stock with the purpose of profiting by repurchasing the securities later at a lower price and returning them to the holder.

Ackman's Estimates

MBIA Chief Financial Officer Chuck Chaplin dismissed findings by Ackman yesterday that the company's CDO losses would reach $11.6 billion. The loss estimate was calculated using a model supplied by an unnamed investment bank, and the findings were sent in a letter to the Securities and Exchange Commission and New York Insurance Superintendent Eric Dinallo.

``It's important to point out that it is a letter demanding transparency where all the analytical work was done by an anonymous global bank that doesn't wish to be identified,'' Chaplin said in response to a question on the conference call today. He said there were flaws in the way the results were presented and said the model itself was a ``black box.''

Ackman began questioning MBIA's AAA rating in 2002 and has since become one of the company's most vocal critics.

Paying the Price

MBIA, Ambac Financial Group Inc. and other bond insurers have been hurt after expanding beyond their traditional business of backing municipal bonds to guaranteeing debt linked to riskier subprime mortgages as well as collateralized debt obligations. Fitch Ratings has already cut AAA rankings on three insurers.

``We're paying for those mistakes and I don't just mean MBIA, I mean all the monolines,'' Dunton said.

MBIA's fourth-quarter loss, which amounted to $18.61 a share, compared with profit of $181 million, or $1.32 a share, a year earlier. The results led to a full-year net loss of $1.9 billion, or $15.22 a share, snapping a streak of annual profitability dating back to at least 1991.

CDOs repackage assets such as mortgage bonds and buyout loans into new securities with varying risk. As the value of some CDOs plummet, ratings companies are pressing the insurers to add more capital.

S&P yesterday said it cut or may reduce ratings on $270.1 billion of subprime-mortgage securities and 572 CDOs valued at $263.9 billion that could extend bank losses and have a ``ripple impact'' on the broader financial markets.

Raising Capital

Bond insurers guarantee $2.4 trillion of debt and are sitting on losses of as much as $41 billion, according to JPMorgan Chase & Co. analysts. Their downgrades could force banks to write down $70 billion, Oppenheimer & Co. analyst Meredith Whitney said yesterday in a report.

MBIA posted $3.4 billion of losses from marking down the value of residential and commercial mortgages as well as CDOs that it guarantees, according to the statement. MBIA also wrote off its $85.7 million investment in Channel Reinsurance Ltd., which reinsures securities guaranteed by MBIA. Moody's said Jan. 23 it may cut Channel Re's Aaa rating.

MBIA yesterday said New York-based private-equity firm Warburg Pincus LLC completed its purchase of $500 million of new shares. Chaplin declined to comment on whether MBIA is considering alternatives to an additional $500 million rights offering to be backstopped by Warburg Pincus.

New York's insurance regulator said this week it hired investment bank Perella Weinberg Partners for advice on the financial stability of bond insurers and how to protect their customers. Any rescue plan will ``take some time'' to complete, Dinallo said.

New York Governor Eliot Spitzer said today he is making ``good progress'' with Dinallo on a plan to help bond insurers raise capital, Reuters reported.

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

Last Updated: January 31, 2008 16:22 EST