MBIA, Ambac shares sink on further write-down fears

By Dan Wilchins

NEW YORK (Reuters) - The shares of MBIA and Ambac dropped on Monday amid concerns the two largest stand-alone bond insurers would have to write down assets further after Swiss Re, the world's biggest reinsurer, wrote down similar assets to zero.

MBIA Inc (MBI.N) and Ambac Financial Group Inc (ABK.N) have recorded considerably lower declines in the value of similar securities -- repackaged consumer debt known as collateralized debt obligations.

"Every time you get a write-down to a new level, people's concerns about the bond insurers' exposure get renewed," said Geoffrey Dunn, an analyst at Keefe, Bruyette & Woods in Hartford, which rates the bond insurers "outperform."

MBIA shares fell 7.3 percent to close at $34.49, while Ambac declined by 7 percent to $25.53 on the New York Stock Exchange.

Swiss Re (RUKN.VX) said it was writing down collateralized debt obligations supported by asset-backed securities to zero.

In contrast, MBIA said last month it recorded unrealized losses of $342 million on its synthetic collateralized debt obligations, or about a 1 percent write-down of its multi- sector CDOs.

Merrill Lynch & Co Inc MER.N and Citigroup Inc (C.N) recorded write-downs of closer to 20 percent for CDO assets in the third quarter.

Bond insurers say their value declines reflect the market disruptions that have occurred in these instruments, but they do not expect real losses.

"We don't foresee any actual losses in this portfolio, so we would expect this (write-down) to reverse itself over time," said Chuck Chaplin, MBIA's chief financial officer, on a conference call last month.

A spokesman for Ambac said the company recorded appropriate declines in the value of CDOs as of September 30, its most recent quarter-end, based on market quotations.

If any of the instruments were to default, bond insurers would not be forced to pay out immediately and would instead pay out over the remaining life of the instrument, much as they do with municipal bonds they insure.

But to many investors, the bond insurers have not recorded large enough declines in the value of CDOs. MBIA has about $6.8 billion of capital and about $130.9 billion of CDO exposure, which is in turn only a portion of its overall portfolio. Write-downs of only a few large deals could wipe out the insurer's capital base.

MBIA's shares have fallen 53 percent this year and Ambac's have fallen 71 percent.

Some analysts see the recent declines as overdone.

"At the end of the day, because I don't believe we can analyze all the risks in their portfolio, opinions on these stocks will be based on your opinion of management, and I think these guys have an incredibly strong track record," said KBW's Dunn.

Investor concerns about write-downs were only accentuated by a report from a Goldman Sachs (GS.N) analyst that said Citigroup may gave to write off $15 billion over the next two quarters

Citi said on November 4 it expected to write off $8 billion to $11 billion for exposure linked to subprime and collateralized debt obligations in the fourth quarter.

(Reporting by Dan Wilchins; editing by Andre Grenon)