Was the “worst merger in Wall Street history” a merger at all?
A judge’s answer to that question will go a long way towards determining if the more than $40 billion (and counting) that Brian Moynihan & Co. have already paid in penance (and write-downs and legal fees, etc.) for the albatross that was and is the “world-class” company known as Countrywide is enough, or if MBIA is entitled to some billions of its own. Read more »
There are some financial jobs that come with a perhaps undeserved swashbuckling cachet. “Oh, you know, I do hostile takeovers,” you say, and a certain crowd will treat you like you just got back from plundering a Spanish ship-of-the-line, even though you mostly sit in a cubicle updating spreadsheets and changing the wording in press releases. Then there are other jobs. When you say “I do liability management for insurance-company bonds,” everyone instantly thinks of spreadsheets.
Still, you swashbuckle on unrecognized, taking a quiet satisfaction in your piratical ways. Everyone in this story is a pirate, and this is a bond that somebody made or lost or made and lost a lot of loot on:
Read the Bloomberg article, and/or our last discussion of this situation a month ago, for more information. The quick back story: Read more »
Was there mortgage-related misbehavior at Bank of America and its various after-acquired subsidiaries? I wasn’t there, but on public information, I mean, sure, why not. Some days it looks like there was mortgage fraud everywhere. But whereas everyone else is all “sorry about the mortgage fraud” and “here is a large settlement,” BofA is not into that. When you accuse them of mortgage fraud, they take the fight to you. They did that with Fannie Mae, refusing to sell it any new mortgages just because Fannie thinks BofA should be buying back some of the old mortgages it mmmmaybe fraudulently sold Fannie. And they’re doing it with MBIA, suing the bejesus out of them just because MBIA is suing the bejesus out of BofA over mortgage fraud.
But that’s old news; the new news is this Bloomberg article about how BofA is opening another front in the MBIA battle. You should read it because it is amazing. Here is the story so far, from BofA’s offer today:
- Bank of America1 bought $6.15 billion notional of insurance/CDS contracts against (surprisingly?) commercial mortgages from MBIA Insurance Corporation, which everyone calls “MBIA Corp.,” and which is a subsidiary of MBIA Inc., which is a public company and which everyone calls just “MBIA.” There’s a deductible, and BofA hasn’t yet eaten through it, so these policies are all outstanding and untouched though dicey-looking.
- Bank of America2 also bought a lot of insurance against home loans that it packaged, also from MBIA Corp.; those loans were terrible, MBIA Corp. has paid off some of the insurance, and now it’s suing to get it back because fraud fraud fraud fraudy fraud fraud.
- Meanwhile MBIA did some internal rejiggering, taking its nice relatively sensible municipal-insurance business, called National Public Finance Guarantee Corp. (everyone calls it “National”), out of MBIA Corp., and put it directly under MBIA, leaving MBIA Corp. with mostly terribleness like Bank of America mortgage insurance. This, one assumes, was done in preparation for casting MBIA Corp. into the fires of Mount Doom. Read more »
As you’re likely aware, one of the most important skills to master when you’re in this money making game is to be able to regulate your emotions. You can’t freak out every time you lose a little cash, and on the flip side, it’s probably a good idea to avoid doing an end-zone dance on the days you make it rain. Many of Wall Street’s most successful investors have perfected the art of staying cool and calm, with the best of the best being basically dead inside. Then you have Bill Ackman.
The Dead Inside model is not the one he’s chosen to follow over the course of his career. On the contrary, Bill is stuffed to the gills with emotion, and often feels compelled to let them out. No, scratch that. Letting his salty tears flow is not a choice, just like Ackman’s passion for standing up to institutions like MBIA and saying “J’accuse!” wasn’t a choice, it was his duty.
Obviously these raw and uncut displays of what Bill’s feeling haven’t prevented him from doing pretty well for himself. They have, however, caused a certain amount of agita for those around him. Bill’s visible tears at last year’s Target shareholder meeting were deeply distressing to Joe Nocera, who hasn’t yet evolved to the point where he’s comfortable seeing a grown man cry. And in Christine Richard’s Confidence Game: How A Hedge Fund Manager Called Wall Street Bluff, we learn of a couple other instances in which Bill’s inability to keep it locked up– one the adorable quirks we love most about him and probably the source of his success!– resulted in some minor and major fallout (making an employee uneasy and the enacting of the aforementioned Nut Kicking Rule, respectively). Richard writes: Read more »
MBIA, the mortgage insurer that decided to back all those subprime securities underwritten by Countrywide and others, will now have its day in court.
A judge ruled earlier this week that MBIA can proceed with its fraud claim against Countrywide (now Bank of America.) The insurer claims Countrywide lied when it told MBIA the mortgages being insured were “in in strict compliance with its underwriting standards and guidelines.” Read more »
That question came up in the hearing earlier this week in reference to an email sent by Josh Birnbaum, a former MD in Goldman’s structured products group.
The email, sent in July 2007, sought authorization form senior management for the structured products desk to buy put options on a slew of competitors including Merrill Lynch, Bear Stearns and Lehman Brothers. The email also revealed that Birnbaum had bought put options on MBIA, Ambac and Countrywide. Read more »
As many of you are aware, when Bill Ackman was just a young pup of a money manager, before he was coming up with genius one-stock funds, he placed a bet against MBIA, based on Ackman’s belief that the company’s AAA rating was the stuff of bull shit. No one had ever dared question the bond insurer, so when its CEO, Jay Brown, got wind of the news, he demanded Ackman show up to his office to discuss the matter, probably referring to the meddlesome manager as “the little pissant” under his breath. Or something. Doesn’t matter. What does matter is what Bill was noshing on before the meeting. It’s something I’ve been thinking about for years as have many of you, as conversations with you leading lights would indicate. Today, finally– finally!– we have an answer.
Before his meeting with MBIA’s CEO, Ackman had lunch with Michael Ovitz, the founder of Hollywood’s Creative Artists Agency and a longtime investor in his fund. As they worked their way through six different versions of toro, the Japanese fatty tuna delicacy, Ackman asked Ovitz’s advice about the upcoming meeting with Brown. “It sounds like a very Japanese meeting,” Ovitz said. In other words, he said, “Just shut up and listen.”
Oh, and here’s how the meeting went (spoiler alert: not great-ish. Because Ackman’s hands smelled like fish. I’m kidding, it’s because Jay Brown was raised in a barn). Read more »
What will we miss most about the last few years? Well, the list is long, but high up on it is Bill Ackman’s skewing of MBIA. That trade was a brutally long campaign, and caught Ackman a lot of flak from MBIA’s PR efforts, but it paid off in the end. Apparently, he has unwound it, finally. Waiting on the last two dollars might have been bouncing the rubble. After a 78% drop in 2008, I’d think about unwinding too. Then again, while he’s been in MBIA with Pershing Square for some time, his short view on the stock dates back much longer: seven years or so.
Ackman first thought MBIA’s stock and bonds would fall in 2002 when he oversaw Gotham Partners, a New York-based investment firm. He wrote a 62-page report casting doubt on the AAA ratings at MBIA’s insurance unit, and last year seven bond insurers lost top rankings as losses on securities backed by subprime mortgages soared.
Sexy graphs after the jump.
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I’m sure there is someone less deserving of Treasury assistance than the likes of MBIA. There are, after all, still some felons out there that could use a couple extra million. Still, since everyone else is slurping at the bailout well, might as well throw in insurers. Right?
MBIA, the largest U.S. bond insurer, and its No. 2 rival, Ambac Financial Group, met with regulators earlier this week to push for a way to tap into the federal government’s bailout plan.
New York Insurance Superintendent Eric Dinallo, the main regulator for MBIA, and Wisconsin insurance commissioner Sean Dilweg, Ambac’s primary regulator, convened in New York to discuss the matter with the firms.
Both companies have seen business grind to a near halt after large losses on mortgage debt guarantees, and subsequent rating cuts.
Watch out MBIA shorts.
U.S. Treasury mulls insurer aid program-sources [Reuters]
The following copy has been revised so as not to offend the delicate palates of a select few. These individuals were brave enough to speak up against the injustice I apparently inflicted on the English language with the previous version of this post (it contained two run-on sentences and the phrase “in my medical opinion,” which made me sound “unintelligent”). Please thank them for acting as a sort of neighborhood watch group, and keeping me in line.
MBIA said today that it may sue Pershing Square Capital founder Bill Ackman. For the last six years, the hedge fund manager has “waged a campaign” against the bond insurer, and this year stated publicly that the company may be insolvent. Apparently MBIA’s decision to “assess all [its] options, including litigation,” is in response to an anonymous e-mail the company received, asking if it planned to follow-up on New York State Insurance Superintendent Eric Dinallo’s comments last month that “rumor mongering” about the solvency of an unnamed bond insurer (see if you can guess which one) by an unnamed short-seller (see if you can guess who) “crossed a line.” Rest assured Carney and–fingers crossed– Andrew Ross Sorkin will have more to say on this later.
MBIA May Sue Short-Seller Ackman’s Pershing Square [Bloomberg]
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Sooo. Moments after we announced our latest market moving experiment, inspired by the stomach rumblings of Charlie Gasparino, C to the G called us to “set the record straight.” Gasparino, who seemed a bit perturbed at Barron’s writer Jonathan Laing’s suggestion that he’d been fed the “Ambac or MBIA will be downgraded” story by Bill Ackman, told us: “A lot of journalists take shots at people without calling them first. This guy lacks the integrity to call me first and at least find out if something is right or wrong. He failed Journalism 101.” Prepared, network-approved comments aside, however, we’ve heard that Gasparino put it slightly less lightly to friends, saying: “This guy didn’t have the balls or the brains to call me. If he had half a brain or half a testicle, he would have at least dialed me up before I fly out to Chicago and dial him up. I hope he sleeps well tonight.” When asked to confirm that the harsher, mildly more litigious words had exited his mouth, CG only offered “no comment.” You do the math. (And: start doing something with that Bear news I mentioned. Time’s running out!)