![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Odd times at MBIA
May. 8th, 2008 11:17 amMBIA is one of the bigger name bond insurers (also known as "monoliners", because they only write one line. However, a monoliner could write one line that wasn't bond insurance, so it isn't precisely accurate) and in February it was under severe pressure to maintain its triple A credit rating. This rating is vital to bond insurers for a number of reasons, which I don't need to go into.
Anyhoo, in February it not only scrapped its Q1 dividend, saving $174m, and raised money trhough the sales of various financial instruments. Because of this (successful) fund-raising, the rating agencies S&P and Moody's kept MBIA at triple A.
Fitch, however, downgraded MBIA to double A, causing MBIA to ask Fitch to fuck off. Fitch no longer receives fees from MBIA and has to compile its rating from third-party sources.
Fitch said on April 4 that it was all very well that MBIA Inc had raised lots of cash, but it would be nice if some of this capital ended up in the bond insurance subsidiary. At the moment, $1.1bn is residing at MBIA Inc, the holding company. And MBIA Inc also runs an investment management business.
So, while S&P and Moody's are rating MBIA at triple A because it expects the money to be "downstreamed" to the insurance unit, MBIA Inc is congratulated by Morningstar for keeping the the money in the holding company because it gives MBIA Inc greater flexibility. That $1.1bn is, in effect, working twice.
The New York State Insurance Department has finally woken up to this, telling Bloomberg that "it was never our expectation that the funds raised would go anywhere other than to the insurance subsidiary".
Fitch, who I back on this one, claims that MBIA needs another $3.8bn, on top of the capital raised, to warrant a triple A rating. MBIA CEO Jay Brown has just sent out an "explanatory" letter to stockholders, saying that the $1.1bn had not been transferred to the insurance unit because the company was planning a new legal and regulatory structure. But that, too, is disngenuous. It could just as easily be resting in the insurance unit while waiting for the restructuring.
"Double-counting" is popular in the financial world, and it's this which has led to over-optimism in the past. E.G., insurers have a claim in progress, but they also have reinsurers. They book the reinsurance at 100%. However, this presupposes that the reinsurer will pay up. Sometimes the reinsurers agree with the insurer, but go broke. Sometimes the reinsurers disagree with the insurer, and book the number at a significantly lower level. Result? Two incompatible profit figures. Multiply that by a few billion dollars and you can see how money can seem to just "disappear".
Accounting and auditing for uncertain future developments is a black art dressed up by accountants and auditors as a science. Much of it is little more than, in several cases, not-very-educated guesswork. Other tax specialists spot this, and then design products that can be interepreted one way by one set of auditors and another way by another. Hybrid securitizations were one such fashion of the week, counted as debt in one part of the world (because the issuer borrows money at a fixed rate of interest) and as equity in another (because the debt will eventually convert to equity). The issuer wants the buyer to think of it as debt, but the rating agencies to think of it as equity.
It's been postulated that the Royal Bank of Scotland sale of its insurance operations is only partly due to the current subprime crisis. There's another reason for banks to get rid of insurers. That is that the new Solvency II regulations will restrict a nice double-counting trick (that I don't actually fully understand myself) that effectively gave banks that owned insurers some "free capital". With that loophole being slowly closed (completely by 2012, I think), the attraction of being a bank that owns an underwriter kind of disappears. More efficient to be a third-party distributor.
But, back to MBIA. It's one of a number of bond insurers that it's hard to imagine surviving in their current form. There may be what is described as a "restructuring" but which will be, in effect, going out of business. The question is, why pay the extra for the bond insurer's guarantee, if the second trouble hits, the bond insurer might not be able to pay up? For years this has been a smoke and mirrors situation, with the likes of MBIA insuring trillions of dollars of debt with only billions of dollars of capital. The smoke is beginning to clear, and the buyers of the insurance are not liking what they are seeing.
++++++++++++++++
I've been bearish on sterling for the dollar for some time. And it's been nice that the money that I take out of my Citibank account is making less and less of a dent in the balance (£200 now costs me $30 less than it would have around last November). But it seems clear that it might be time to turn bearish on the euro vs the dollar. There really seems very little dollar downside in the medium term when you are at $1.60:€1. My only euro holding is with NoIQ, where back-office money sits in Euro form. It might be time to shift that back to Neteller, thence to the Citibank account.
I took the last-minute chance to open a rakeback Pacific Poker account. The first thing that struck me is that it's all very well talking about various game-playing strategies, but 90% of online play these days seems to be finding the ever-rarer good game. And good games appear where there is a supply of gambling non-poker players. If I gave online poker lessons, I think that "Hunt the weak game on the weak site" would be the majority of my training. The next bit would be "and how to use tracking software".
Betfair was superb for a few months, simply because Betfair punters gave poker a go. It took about nine months before the vast majority of them realized that they were crap. Now, you aren't going to find so many weak players at Pokerstars or Full Tilt, which market to poker players. You need sites with cross-fertilization. Pacific Poker, for the moment, fits that bill. It is linked to 888, which is more linked to online casinos, online slots, online bingo, etc. The downside was that it doesn't offer hand histories. I gave it a go for an hour and realized that I would have much more of an edge with hand histories. Next stop, Idle Miner.
And, of course, there's the difference. IP Network offers hand histories and Pokertracker. Pacific requires $50 expenditure for an extra piece of software. Most of the German and East European shortstackers wouldn't pay $50 for a piece of software if you held a gun to their head, so they stey put at Party.
So, Pacific gets added to the roster. It's all a bit of a pain, juggling the various "loyalty" programmes, but it serves the purpose of stopping me getting bored and stopping any one poker name getting too well-known. And it also takes a while to get used to the predominant "style" of your opponents, which varies considerably from site to site and which it is vital to get a handle on if you are to make more right decisions than wrong ones.
Idle Miner is available for IP Network as well. The loose fish there are so outnumbered by the sharks that you only have to see one to see a 16-man wait list appear, while other tables have a pre-flop ratio of 4% and an average pot size of a nanocent.
_________________
Anyhoo, in February it not only scrapped its Q1 dividend, saving $174m, and raised money trhough the sales of various financial instruments. Because of this (successful) fund-raising, the rating agencies S&P and Moody's kept MBIA at triple A.
Fitch, however, downgraded MBIA to double A, causing MBIA to ask Fitch to fuck off. Fitch no longer receives fees from MBIA and has to compile its rating from third-party sources.
Fitch said on April 4 that it was all very well that MBIA Inc had raised lots of cash, but it would be nice if some of this capital ended up in the bond insurance subsidiary. At the moment, $1.1bn is residing at MBIA Inc, the holding company. And MBIA Inc also runs an investment management business.
So, while S&P and Moody's are rating MBIA at triple A because it expects the money to be "downstreamed" to the insurance unit, MBIA Inc is congratulated by Morningstar for keeping the the money in the holding company because it gives MBIA Inc greater flexibility. That $1.1bn is, in effect, working twice.
The New York State Insurance Department has finally woken up to this, telling Bloomberg that "it was never our expectation that the funds raised would go anywhere other than to the insurance subsidiary".
Fitch, who I back on this one, claims that MBIA needs another $3.8bn, on top of the capital raised, to warrant a triple A rating. MBIA CEO Jay Brown has just sent out an "explanatory" letter to stockholders, saying that the $1.1bn had not been transferred to the insurance unit because the company was planning a new legal and regulatory structure. But that, too, is disngenuous. It could just as easily be resting in the insurance unit while waiting for the restructuring.
"Double-counting" is popular in the financial world, and it's this which has led to over-optimism in the past. E.G., insurers have a claim in progress, but they also have reinsurers. They book the reinsurance at 100%. However, this presupposes that the reinsurer will pay up. Sometimes the reinsurers agree with the insurer, but go broke. Sometimes the reinsurers disagree with the insurer, and book the number at a significantly lower level. Result? Two incompatible profit figures. Multiply that by a few billion dollars and you can see how money can seem to just "disappear".
Accounting and auditing for uncertain future developments is a black art dressed up by accountants and auditors as a science. Much of it is little more than, in several cases, not-very-educated guesswork. Other tax specialists spot this, and then design products that can be interepreted one way by one set of auditors and another way by another. Hybrid securitizations were one such fashion of the week, counted as debt in one part of the world (because the issuer borrows money at a fixed rate of interest) and as equity in another (because the debt will eventually convert to equity). The issuer wants the buyer to think of it as debt, but the rating agencies to think of it as equity.
It's been postulated that the Royal Bank of Scotland sale of its insurance operations is only partly due to the current subprime crisis. There's another reason for banks to get rid of insurers. That is that the new Solvency II regulations will restrict a nice double-counting trick (that I don't actually fully understand myself) that effectively gave banks that owned insurers some "free capital". With that loophole being slowly closed (completely by 2012, I think), the attraction of being a bank that owns an underwriter kind of disappears. More efficient to be a third-party distributor.
But, back to MBIA. It's one of a number of bond insurers that it's hard to imagine surviving in their current form. There may be what is described as a "restructuring" but which will be, in effect, going out of business. The question is, why pay the extra for the bond insurer's guarantee, if the second trouble hits, the bond insurer might not be able to pay up? For years this has been a smoke and mirrors situation, with the likes of MBIA insuring trillions of dollars of debt with only billions of dollars of capital. The smoke is beginning to clear, and the buyers of the insurance are not liking what they are seeing.
++++++++++++++++
I've been bearish on sterling for the dollar for some time. And it's been nice that the money that I take out of my Citibank account is making less and less of a dent in the balance (£200 now costs me $30 less than it would have around last November). But it seems clear that it might be time to turn bearish on the euro vs the dollar. There really seems very little dollar downside in the medium term when you are at $1.60:€1. My only euro holding is with NoIQ, where back-office money sits in Euro form. It might be time to shift that back to Neteller, thence to the Citibank account.
I took the last-minute chance to open a rakeback Pacific Poker account. The first thing that struck me is that it's all very well talking about various game-playing strategies, but 90% of online play these days seems to be finding the ever-rarer good game. And good games appear where there is a supply of gambling non-poker players. If I gave online poker lessons, I think that "Hunt the weak game on the weak site" would be the majority of my training. The next bit would be "and how to use tracking software".
Betfair was superb for a few months, simply because Betfair punters gave poker a go. It took about nine months before the vast majority of them realized that they were crap. Now, you aren't going to find so many weak players at Pokerstars or Full Tilt, which market to poker players. You need sites with cross-fertilization. Pacific Poker, for the moment, fits that bill. It is linked to 888, which is more linked to online casinos, online slots, online bingo, etc. The downside was that it doesn't offer hand histories. I gave it a go for an hour and realized that I would have much more of an edge with hand histories. Next stop, Idle Miner.
And, of course, there's the difference. IP Network offers hand histories and Pokertracker. Pacific requires $50 expenditure for an extra piece of software. Most of the German and East European shortstackers wouldn't pay $50 for a piece of software if you held a gun to their head, so they stey put at Party.
So, Pacific gets added to the roster. It's all a bit of a pain, juggling the various "loyalty" programmes, but it serves the purpose of stopping me getting bored and stopping any one poker name getting too well-known. And it also takes a while to get used to the predominant "style" of your opponents, which varies considerably from site to site and which it is vital to get a handle on if you are to make more right decisions than wrong ones.
Idle Miner is available for IP Network as well. The loose fish there are so outnumbered by the sharks that you only have to see one to see a 16-man wait list appear, while other tables have a pre-flop ratio of 4% and an average pot size of a nanocent.
_________________
