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Continued deterioration in the credit markets in January will likely lead to further write-downs at bond insurer MBIA Inc., the company said in a regulatory filing Friday.
Not only will write-downs hinder first-quarter earnings at MBIA, but the company is booking less business as well, it said in the filing with the Securities and Exchange Commission.
"The demand for our product is the lowest it has been and we are writing very little new business," MBIA said.
Subprime mortgages are loans given to customers with poor credit history, while CDOs are complex financial instruments that combine various slices of debt and often include bonds backed by mortgages.
MBIA said it was still unsure how large January write-downs would be based on deterioration in the markets during the month. The company said the write-downs stemmed from accounting adjustments to the value of insured credit positions.
During the fourth quarter, MBIA reduced the value of its credit portfolios by $3.4 billion.
Bond insurers have struggled mightily in recent months. Ratings agencies and investors fear a spike in mortgage defaults will cause an increase in defaults on bonds backed by the troubled loans and insured by companies like MBIA.
Ratings agencies have worried that so many bonds will default that the insurers will not have enough cash to pay claims. That led them to cut the ratings of some insurers from their critical "AAA" level. "AAA" ratings are essentially needed to book new business.
MBIA has been able to raise more than $2 billion in recent months to hold in reserve to protect itself from a possible spike in claims. That has enabled it to maintain its "AAA."
The one benefit to booking less business is that MBIA's total insured portfolio value is declining as old premiums are paid off and not replaced by new ones. That in turn frees up capital reserves.
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