Assured Guaranty's First-Quarter Profit Triples on Purchase of Competitor
Net income climbed to $322 million, or $1.69 a share, from $85.5 million, or 93 cents, a year earlier, the Hamilton, Bermuda-based company said today in a statement. The bond insurer was predicted to earn 79 cents, the average estimate of three analysts in a Bloomberg survey. Operating income was 47 cents compared with analysts’ average estimate of 65 cents.
Assured Guaranty dominates the shrinking private municipal- bond insurance business after market leaders including MBIA Inc. and Ambac Financial Group Inc. had their credit ratings slashed to below investment grade. Assured is the only bond insurer active at the onset of the credit crisis that still has an investment-grade rating.
“We recorded positive operating earnings this quarter, despite continued losses primarily related to the insured residential mortgage-backed portfolio,” Chief Executive Officer Dominic Frederico said in the statement. “With regard to the additional mortgage losses, early stage delinquencies showed some signs of improvement.”
The company bought competitor Financial Security Assurance Holdings Ltd. in July and is the only active insurer of municipal bonds. About $1.4 trillion of municipal securities are insured out of a total of $3.4 trillion outstanding, according to Bloomberg data.
Assured Guaranty rose 13 percent to $19.98 in regular New York Stock Exchange composite trading, the biggest jump since Nov. 17, before the earnings release. The shares have gained 46 percent over the last year.
Assured also provided a policy during the first quarter on $200 million of bonds backed by auto loans for AmeriCredit Corp. In early 2008, bond insurers halted almost all their business in the structured-finance market in a bid to retain capital and save their AAA credit ratings.
Assured Guaranty Corp., the company’s regulated bond insurance unit, is rated Aa3 by Moody’s, three levels below the former industry standard of Aaa. Since 2008, MBIA Insurance Corp.’s rating has dropped 15 steps to B3, while Ambac Assurance Corp. has been cut 17 levels to Caa2.
“Improving ratings is the primary use of capital, with the hope that the company could once again achieve a triple-A rating from Moody’s,” Nathaniel Otis and William Clark, analysts at Keefe, Bruyette & Woods, wrote last month in a research report.
Avoided Mortgage CDOs
Assured didn’t guarantee the collateralized debt obligations, or CDOs, linked to mortgage-backed securities that MBIA and Ambac have said will lead to billions of claims against their insurance units. CDOs bundle bonds, loans, or derivatives and use payments on those securities to pay investors.
The company hasn’t escaped all of the problems in the credit markets. It’s paid claims on bonds backed by second-lien and Alt-A mortgages. It also insured bonds issued to finance a trash-to-energy incinerator in Harrisburg, Pennsylvania. The city, which guaranteed some of the bond payments, is considering filing for bankruptcy as the annual cost of the debt is four times what it raises in property taxes.
(The company will hold a conference call at 8 a.m. tomorrow to discuss first quarter results.)