From Reuters:
MBIA Inc, the world’s largest bond insurer, on Wednesday slashed its common stock dividend 62 percent as part of a plan to strengthen capital and preserve the “triple-A” credit ratings it depends on to operate normally.
The company reduced its quarterly dividend to 13 cents per share from 34 cents, in a bid to save $80 million a year. It also said its main insurance unit plans to sell $1 billion of debt maturing in 2033. Last month, MBIA said Warburg Pincus agreed to invest $500 million in common stock, and receive warrants to buy additional shares.
MBIA, based in Armonk, New York, said that once it completes its capital management plan, it expects to meet or exceed the requirements for “triple-A” ratings from credit rating agencies.
In pre-market trading, shares of MBIA fell 73 cents to $13.25 from Tuesday’s composite close.
Which is all very well, but a saving of $80m is a far cry from satisfying MBIA’s capital adequacy requirements. Fitch, for example, has stipulated that MBIA needs to stump up another $1bn in capital by the end of January - three weeks away - or else lose its rating (and thus cause the collapse of the insurer’s business).
This dividend cut is reflecting MBIA’s other big problem: the one it’s going to have to live with if it does survive - the fact that monolines have had their business models exposed as deeply, deeply, flawed. Cutting the dividend is a cost saving exercise, perhaps naively predicated on the belief that in six months time, there’ll be a viable business with costs to cut.
Anyway, MBIA clearly think there will be. And if it’s true what they say above, that they expect to meet the rating agencies’ targets in two weeks, then their stock should rise this morning, dividend cut or no dividend cut.
Update: MBIA up 1.5 per cent at $14.40 10:00 EST.
