Pershing's Ackman Says MBIA Could Go Under in 2nd-Qtr

By Michael Flaherty and Megan Davies

NEW YORK (Reuters) - Bond insurer MBIA Inc (MBI.N: Quote, Profile, Research, Stock Buzz) could be insolvent as soon as the second quarter of 2008 if it cannot raise additional capital, activist investor William Ackman said on Wednesday.

Ackman's Pershing Square Capital has shorted shares of Ambac and MBIA, meaning the fund profits if the bond insurers' shares drop.

Ackman estimates MBIA will incur $2.2 billion of losses in the fourth quarter, and rival bond insurer Ambac Financial Group Inc (ABK.N: Quote, Profile, Research, Stock Buzz) will incur $4.2 billion of losses.

A spokesman for MBIA said, "The company strongly disagrees with Mr. Ackman's statement that the company will be insolvent in the second quarter of 2008. He made similar statements in 2002, none of which have come true."

Bond insurers have guaranteed large amounts of structured finance securities that were backed by subprime assets. Their exposure, Ackman said, is similar to that of Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz), two banks that suffered massive subprime related write downs.

But the insurers have relatively low amounts of capital, so a few big bond defaults could cause them big trouble, Ackman said.

Shares of MBIA have fallen nearly 60 percent this year, while Ambac's shares were down almost 75 percent.

On the New York Stock Exchange on Wednesday, Ambac's shares rose 2.34 percent to close at $22.30, while MBIA's shares closed down 0.59 percent at $30.28.