MBIA 2nd-qtr profit down, lowers reserves for losses

NEW YORK (Reuters) - MBIA Inc (MBI.N) reported a lower second-quarter profit on Wednesday, but the bond insurer's shares rose about 14 percent after it said it lowered the amount of money put aside to cover losses.

The company said it lowered loss reserves after it recorded an estimated $1.1 billion in recoveries related to certain insured residential mortgage securitizations in the quarter, which offset losses on other mortgage-related securities.

This decrease in loss reserves was the prime driver for the second-quarter profit, MBIA said in its earnings statement.

Net income fell to $894.7 million, or $4.30 a share, compared with $1.7 billion, or $7.14 cents a share a year ago, when a large unrealized gain on insured credit derivatives boosted results.

MBIA, based in Armonk, New York, and its smaller rival Ambac Financial Group Inc ABK.N have struggled to get new business after crippling losses from risky mortgage securities and being stripped of their triple-A ratings.

"We expect continued high levels of claims payments for the balance of 2009," President and Chief Financial Officer Chuck Chaplin said in the statement, noting the performance of residential mortgage backed securities deteriorated further in the quarter.

The bond insurer is attempting to set up a separate arm to focus on municipal bonds, but it is facing litigation that is delaying this effort, the company said in the statement.

Investors, banks and counterparties are worried the new unit could strip the parent company of its best assets.

"We continue to believe that we will ultimately prevail and have laid the groundwork to resume writing new business," said Chaplin, discussing MBIA's plans to return to the municipal bond market.

MBIA shares rose to $6.32 after hours, after closing at $5.53 on the New York Stock Exchange.

(Reporting by Elinor Comlay; editing by Andre Grenon)