After MBIA’s rather peremptory email to Fitch last week requesting that the agency withdraw its rating on the bond insurer (an email Fitch promptly published), Fitch CEO Stephen Joynt, has hit back.
He accuses MBIA of being “disingenious”
It would appear that rather than “work with Fitch” your intention could be to emasculate our opinion by withholding information and subsequently discredit our opinion as being uninformed.
The sting though, is in the very excellent suggestion Joynt makes in the opener:
…we are empathetic to the financial and operational stress MBIA is presently undergoing and are aware of the significant cost containment measures you are initiating. We are, therefore, willing to continue our ratings without charge to MBIA.
An offer MBIA can’t refuse? Or one that it certainly will, and in doing so, expose the fallacy of arguments made about ditching Fitch for purely practical reasons.
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March 10, 2008
Mr. Joseph W. Brown
Chairman and Chief Executive Officer
MBIA Inc.
113 King Street
Armonk, NY 10504
Dear Mr. Brown:
I am writing in response to your letter to Fitch Ratings delivered to us this past Friday requesting that we withdraw MBIA’s Insurer Financial Strength (IFS) rating, but maintain MBIA’s debt ratings.
Regarding the commercial relationship between MBIA and Fitch, as I suggested to you in our meeting on Friday, we are empathetic to the financial and operational stress MBIA is presently undergoing and are aware of the significant cost containment measures you are initiating. We are, therefore, willing to continue our ratings without charge to MBIA. I assume, in the interest of your stakeholders, that you will be seeking and will receive equal concessions and/or sizable fee reductions from both S&P and Moody’s.
In addition, I would like clarification of your intentions regarding cooperation with our rating process. You stated in your March 7 press release, and in your letter to us of the same date, that you would like us to withdraw our IFS ratings, but continue rating MBIA’s debt securities. Separately, by email sent a day later on March 8 (a copy of which is attached hereto) you requested that we return or destroy key portfolio information and discontinue all use of that information in proceeding with our rating analysis. It seems disingenuous at best to assert in your letter to investors published yesterday, March 9 (footnote 1), that you “intend to work with Fitch to perform the analysis needed to rate [MBIA’s] debt securities”, while privately demanding return of the portfolio information and materials that you freely provided to support our ratings and that of other rating agencies for many years.
It would appear that rather than “work with Fitch” your intention could be to emasculate our opinion by withholding information and subsequently discredit our opinion as being uninformed.
In your letter, you also state that the value of IFS ratings in today’s volatile capital markets is disconnected from individual instruments insured by MBIA and “overwhelmed by the forces of trading markets in unrelated securities.” If you believe that, then you should request withdrawal of all rating agencies’ IFS ratings.
Your conflicting views lead me to question whether it is the Fitch capital model, rating process or fees that you object to or rather is it that you are aware we are continuing our analytical review and may conclude that, in our view, MBIA’s insurer financial strength is no longer ‘AAA’.
I believe the central issue is MBIA’s financial strength and the value of your insurance policies to investors, not the value of an IFS rating. It seems an unusual first step in attempting to rebuild MBIA’s reduced credibility with investors to limit information, decrease transparency
and restrict “informed opinions” (which I believe Fitch has) just because we may not conclude that MBIA is a ‘AAA’ company.
I believe that the best way forward for MBIA to reestablish the value of its products in the market is to make more information available to more rating agencies rather than just aligning MBIA with Standard & Poor’s and Moody’s.
For clarification purposes, I ask that you please address the following questions:
– Will you provide typical management reports, qualitative risk limit information, and other private information (with the exception of portfolio specific details) that are typically provided to NRSRO’s by all rated public financial institutions?
– Do you expect to provide access to management comparable to the access provided by rated public financial institutions?
– Since you are requesting we continue our public securities ratings, can you affirm that you regard the information and access you intend to provide should be sufficient for a NRSRO to form a reasoned conclusion about the creditworthiness of your company?
We are considering your request that we withdraw the IFS ratings and return the portfolio information you previously provided us and will be consulting with regulators, issuers, investors and our own advisors and expect to announce publicly our views in the next several days.
Very truly yours,
[signed]
Stephen W. Joynt
President and Chief Executive Officer
Fitch Ratings
