MBIA says Ackman's model has major deficiencies

NEW YORK Thu Feb 14, 2008 1:19pm EST

NEW YORK (Reuters) - MBIA Inc (MBI.N) said that Bill Ackman's estimate that the bond insurer faces more than $11 billion of potential losses is based on faulty assumptions, and is clearly intended to help Ackman's bet that the company's shares will drop.

MBIA said in a letter to regulators dated February 11 and made public on Thursday that the model and data Ackman used to determine MBIA's losses appear to "have some major deficiencies," including its use of 1,267 randomly selected securities to estimate losses. MBIA instead uses a loan-by-loan analysis.

Bill Ackman, founder of hedge fund Pershing Square Capital Management, has been vocal about his short position in MBIA for years.

In a letter sent at the end of January, Ackman suggested to regulators that MBIA and other bond insurers should not be allowed to shift funds from their regulated insurance units to their holding companies.

Ackman said that those dividends from the operating unit to the parent company would unfairly shift funds to investors that could pay off policyholders.

MBIA said in its letter that if the bond insurers' holding companies were deprived of cash flow, their ratings would fall, and their operating units' ratings would fall as well.

"Mr. Ackman purports an interest in 'Saving the Bond Insurers,' but his cynically self-serving proposals offer no such salvation," MBIA said.

MBIA said in written testimony obtained by Reuters on Wednesday that lawmakers and regulators should curtail short-sellers beating down its stock, which has fallen more than 80 percent since the start of 2007.

(Reporting by Dan Wilchins; Editing by Brian Moss)

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