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MBIA eliminates quarterly dividend; new CEO says bond insurer will restructure within 5 years

MBIA eliminates quarterly dividend; new CEO says bond insurer will restructure within 5 years

MBIA Inc., a bond insurer fighting to hang on to its top-notch credit rating, said it will eliminate its quarterly dividend and restructure within five years.
The actions came as Standard and Poor's affirmed its rating on the financial strength of MBIA and Ambac Financial Group Inc., another troubled bond insurer.
MBIA insures $670 billion (euro452.18 billion) in bonds. A rating downgrade could make it more difficult for businesses and municipalities that rely on those bonds to borrow money.
Jay Brown, MBIA's recently installed chairman and chief executive, said he recommended the board halt the dividend to shore up the company's financial resources and improve its operating flexibility. The move is expected to save the company $174 million (euro117.43 million) a year.
Last month, Armonk, New York-based MBIA slashed its dividend by more than half, to 13 cents, although no dividends have yet been paid out at that rate.
In a letter to shareholders Monday, Brown said the company will declare and pay dividends on an annual, rather than quarterly, basis in the future.
Brown also wrote in the letter that MBIA will stop insuring new derivative credit contracts and suspended the writing of new structured finance business for the next six months.
Looking ahead, he said "as soon as it's feasible but within a five-year period, we will restructure the company in such a way as to insure public and structured finance business from separate operating entities."
Last week, MBIA said it believed it was best for bond insurance companies to split the business of insuring municipal bonds from riskier bonds such as those backed by mortgages.
"My goal is to retain the highest ratings that we can for both our structured and public finance businesses, and I believe this can be accomplished by separating these two business lines and leaving the derivative market to the traders on Wall Street," Brown wrote.
MBIA has been scrambling to raise cash to mollify ratings agencies concerned over their exposure to risky mortgage debt.
One of those agencies, Standard and Poor's, Monday afternoon affirmed its "AAA" rating on MBIA and Ambac.
MBIA has already sold $1.6 billion (euro1.08 billion) in stock and $1 billion (euro670 million) in bonds to fortify its cushion of capital used to pay claims. But as the canceled dividend shows, the company appears willing to take further steps to maintain its top-notch rating.
"MBIA will continue to take reasonable and prudent actions such as this dividend elimination in an effort to retain and strengthen our Triple-A ratings," Brown said.
The company will also let shareholders vote on the board of directors' significant executive pay decisions starting at the 2009 annual meeting, Brown said in the letter.
He said the continued uncertainty in the housing market, the credit crunch, and the effect of interest rate cuts and Congress' economic stimulus plan means MBIA will need to keep reviewing its loss reserve model, as well.
MBIA shares fell 25 cents to $14.33 in after-hours trading. The stock surged $2.40, or nearly 20 percent, during the regular session after S&P affirmed the company's ratings.


Updated : 2021-05-10 07:11 GMT+08:00