Assured Guaranty Ltd., the only active insurer of newly issued bonds, fell the most in almost 11 months after reporting first-quarter operating earnings that were lower than analysts forecast, and rival MBIA Inc., the largest insurer of bonds, also declined.
Assured Guaranty’s net income more than tripled to $322 million on the acquisition of a competitor last year, the company said after the market closed yesterday. Its operating profit of 47 cents a share fell short of analysts’ estimates of 65 cents, according to a Bloomberg survey. MBIA reported a $1.5 billion loss, reflecting an accounting rule that required it to revalue some obligations. Both companies said expected claims rose during the quarter and they would try to reduce losses by forcing mortgage originators to buy back improperly originated loans used to back insured securities.
“More and more people are questioning the viability of business model,” Rob Haines, analyst at CreditSights Inc. in New York, said of Assured Guaranty. “There are still lots of question marks about MBIA.”
Assured Guaranty fell $1.91 a share, or 9.6 percent, to $18.07 a share at 11:33 a.m. in New York Stock Exchange composite trading. It traded as low as $17.57 a share, a 12 percent drop that was the largest since June 2009. Yesterday, it rose 13 percent, the most since November, before reporting its earnings. MBIA fell 55 cents, or 6 percent, to $8.78 today, after rising 9 percent yesterday.
Assured Guaranty, which is backed by billionaire Wilbur Ross, extended by one quarter the period in which it expects foreclosures to remain elevated and foresees larger losses per each subprime default, Chief Financial Officer Robert Mills said on a conference call today.
‘Reason to Be Optimistic’
Chief Executive Officer Dominic Frederico said on the call he has “every reason to be optimistic” with new mortgage delinquencies falling in recent months, and amid the Hamilton, Bermuda-based company’s plan to sue two “smaller” lenders over “defective” loans in the bonds it backs.
Regarding declining mortgage defaults that he said may lead to a peak in foreclosures over the summer, Frederico said that “I will pray and light a few candles at church next Sunday” in the hopes that the trend continues.
MBIA increased the amount it expects to cover from mortgage originators to $1.9 billion from $1.5 billion during the quarter. “Basically everything hinges on these put-backs,” Haines said.
Losses at the Armonk, New York-based insurer “have more to do with collateral that was misrepresented and doomed to fail rather than the recession,” MBIA Chief Executive officer Jay Brown said during a conference call today.
MBIA Chief Financial Officer Chuck Chaplin said during the call that the company now expects to pay claims of $123 million on bonds backed by commercial real estate loans.