CORRECTED-UPDATE 4-MBIA 2nd-qtr profit rises on gain

NEW YORK (Reuters) - MBIA Inc (MBI.N) posted a quarterly profit of $1.7 billion on Friday due to an accounting change that turned credit problems into a big gain, but the world's largest bond insurer said it is having trouble winning new business since losing its top debt ratings.

Results topped Wall Street estimates, and shares climbed as much as 14 percent on the New York Stock Exchange.

MBIA also recorded $742 million in one-time losses on bonds it sold or plans to sell in an investment portfolio.

Chief Executive Jay Brown said on a conference call he could not say when MBIA would again be in a position to write new business.

The company, like others in the industry, is retrenching after large losses.

Like smaller rival Ambac Financial Group Inc (ABK.N), MBIA plans to return to its roots of guaranteeing municipal bonds, after being burned insuring repackaged mortgages and other debt in a bid to diversify and boost profits.

After MBIA lost its top debt ratings in June, the company was seen as less likely to pay its insurance contracts or credit derivative obligations, and they lost value in the market.

As the fair value of its obligations declined, the company recorded about $3 billion in accounting-related gains, giving quarterly net income a boost. Ambac reported it benefited from similar gains earlier this week.

Armonk, New York-based MBIA said it did not need to to take any unusual write-downs on credit derivatives or increases in loss reserves in the second quarter, but was prepared to do so if market conditions worsened.

Its loss reserves and impairments for mortgage-related credits rose by $25 million.

MBIA's after-tax operating income rose 11 percent to $228.9 million from $206.9 million, benefiting from not having to bolster loss reserves during the quarter. But profit per share fell to 96 cents from $1.57 due to more shares outstanding.

On that basis, analysts expected a loss of $1.46 per share, according to Reuters Estimates.

On Wednesday, Ambac released $339.3 million from reserves for residential mortgage-backed securities, an indication that it sees a decline in potential claims.

Bond insurers are paid a premium in exchange for guaranteeing to meet payments if a bond defaults.

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When MBIA Insurance Corp lost its top credit ratings from Standard & Poor's and Moody's, it "had a significant impact on our asset management business and our ability to write new insurance business," Brown said in a statement.

The company's measure of the value of its future business fell 93 percent to $29.8 million in the quarter from the same quarter last year.

Second-quarter net income rose to $1.7 billion, or $7.14 per share, from $211.8 million, or $1.61, a year earlier.

With the accounting gains, MBIA's book value rose to $16.67 in the quarter from $8.70 in the first quarter. Book value per share represents the net accounting value of the company's assets per share, and was $29.16 at the end of last year.

MBIA also said its board approved the resumption of stock buybacks. It is authorized to buy back $340 million worth of shares.

Brown said the company is talking with rating agencies about securing a top credit rating for a new municipal bond insurer business. He added it was not clear if it would be successful, or how much capital would be needed for the new unit.

"All of our surveys indicate there is demand" for municipal insurance, Brown said. He expects a final decision in two to four months. MBIA hopes it will be easier to win back business if it has a high rating.

The unit would be separate from other parts of its business tainted by ratings downgrades.

Ambac has said its new municipal bond insurer could be open as early as Oct. 1.

MBIA shares rose 64 cents to $8.92 after rising as high as $9.48. The stock has traded in a 52-week range of $3.62 to $68.83.

In June, Moody's cut MBIA's main insurance unit by five notches to "A2" from "Aaa," while S&P lowered its equivalent rating two notches to "AA" from "AAA."

(Reporting by Christopher Kaufman, Elinor Comlay, Dan Wilchins and Lilla Zuill; Editing by Lisa Von Ahn/Jeffrey Benkoe)