MBIA slides to huge 1Q loss on hefty charges
Written by admin on May 12, 2008 – 12:44 pm -By STEPHEN BERNARD, AP Business Writer
Mon May 12, 9:34 AM ET
NEW YORK - MBIA Inc. swung to a $2.41 billion loss during the first quarter as the bond insurer faced ongoing deterioration in the credit markets and recorded billions in write-downs.
The loss equated to $13.03 per share during the quarter ending March 31, compared with year-ago profits of $198.6 million, or $1.46 per share.
MBIA was forced to reduce the value of its insured derivatives holdings by $3.58 billion, leading to $2.96 billion in total lost revenue, compared with revenue of $729.9 million a year ago. Net premiums written tumbled to $97.3 million from $171.3 million last year.
Unlike traditional insurance on corporate or municipal bonds, the value of derivatives holdings — called credit default swaps — must be priced at the end of each quarter at current market value. Because the value of such products has tumbled in recent months, MBIA was forced to cut the value of its holdings, thus recording what in accounting terms is called an unrealized loss. Actual losses would only occur if MBIA sold the derivatives at less than the original cost.
MBIA does not project actual losses on those holdings to ever reach the amount equal to the write-downs it took during the quarter, it said in a statement.
Shares rose more than 4 percent, or 41 cents, to $9.84 at the open of trade.
The derivatives losses were not the only problems plaguing bond insurers in recent months. They have also been hit hard by the deterioration in the mortgage markets that began in late 2007.
Initially, bond insurers only provided insurance to municipalities. But in recent years business was expanded to insure other debt, such as bonds backed by mortgages and consumer loans. As the mortgage market soured and mortgage defaults spiked in 2007, investors and ratings agencies began to worry bonds backed by those troubled loans would default as well. That in turn would lead to a spike in claims payments.
Both investors and credit ratings agencies worried the insurers would not have enough spare cash to both handle a potential increase in claims and maintain reserves warranting top-notch “AAA” financial strength ratings.
The “AAA” rating is essential to ensure bond insurers can book new business. Worries that insurers like MBIA could face ratings cuts cost the company some new business — one reason why written premiums declined during the first quarter.
Downgrades to bond insurers can make it more expensive for municipalities and other institutions to borrow money for an array of projects ranging from the construction of new schools to sewer systems. Bond insurers essentially back a bond by agreeing to pay principal and interest if the bond issuer misses payments. In return for the insurance, a municipality typically will be able to use the insurer’s “AAA” rating to get a lower interest rate and thus save money.
Without that “AAA” rating on a bond pledged by the insurer, investors will charge municipalities more to borrow money. Those higher costs are often passed down to taxpayers in the form of higher taxes.
Throughout the quarter, MBIA raised about $2.6 billion in new capital through the issuance of common stock and other investments. That included investments by private equity firm Warburg Pincus in an effort to maintain MBIA’s “AAA” ratings and demonstrate it would have enough cash to cover a spike in claims.
Despite the capital raising efforts, Fitch Ratings cut MBIA’s financial strength rating to “AA” from “AAA” in early April. MBIA’s reserves range between $3.4 billion and $3.8 billion short of what is needed for Fitch to consider the bond insurer worthy of being rated “AAA,” Fitch said then.
Both Moody’s Investors Service and Standard & Poor’s affirmed MBIA’s “AAA” rating in late February, but all three ratings agencies have a long-term negative outlook on the bond insurer.
Prior to those ratings affirmations in February by Moody’s and S&P, MBIA had booked very little new business, the company said in a statement……..
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IndyMac Bancorp swings to 1st-qtr loss, sees 2008 loss
Written by admin on May 12, 2008 – 12:42 pm -By ALEX VEIGA, AP Business Writer
14 minutes ago
LOS ANGELES - IndyMac Bancorp Inc. swung to a loss in the first quarter as deteriorating credit markets forced the mortgage lender to lower the value of mortgage-backed securities, and warned Monday it would not post a profitable quarter in 2008.
“We do not expect that Indymac will be able to return to overall profitability until the current decline in home prices decelerates,” Chief Executive Michael Perry said in a statement.
IndyMac shares fell 24 cents, more than 7 percent, to $3.19 in midday trading.
The Pasadena, Calif.-based holding company for IndyMac Bank reported a loss of $184.2 million, or $2.27 per share, for the quarter ended March 31.
That compares with a profit of $52.4 million, or 70 cents per share, in the same period a year earlier.
Analysts polled by Thomson Financial expected a loss of $1.92 per share.
The latest results included $249 million related to declining values of mortgage-backed securities. The company more than tripled its credit reserves to $2.7 billion from a year earlier.
IndyMac said 24 percent of its losses during the quarter stemmed from severance payments and costs related to office closings. Discontinued businesses, including its homebuilder and home equity lending divisions, accounted for another 22 percent, IndyMac said.
The lender stopped making new loans via its construction lending division in the fourth quarter, with home builders stuck with new units they couldn’t sell.
The company originated $9.6 billion in new mortgage loans during the quarter, with 88 percent of the volume representing loans that can be sold to government-sponsored mortgage companies.
Perry forecast that the company would post smaller quarterly losses through the end of the year as its restructuring and credit provision costs and losses from discontinued operations decline.
“In this respect, I believe that we have turned a corner and that our business is improving,” Perry said in a statement.
Perry projected a $20 million loss for the fourth quarter, but noted some of the company’s business segments would be profitable as early as the second quarter.
To help generate capital, IndyMac said it will stop paying a dividend on preferred shares. The move is expected to save $7.4 million each quarter.
IndyMac noted its capital levels exceed regulators’ requirements.
The lender saw higher loan default and foreclosure rates during the quarter as falling housing prices and tighter mortgage lending standards continued to pressure many borrowers.
As a percentage of unpaid principal balance, about 8.3 percent of the loans in IndyMac’s mortgage servicing portfolio were at least 30 days late as of March 31. That’s up from 5.4 percent a year earlier and up from 7.3 percent on Dec. 31, IndyMac said.
Loans 90 days past due or in foreclosure represented 6.5 percent of total assets, up from 1.1 percent in the year-ago period and up from 4.6 percent as of the close of the fourth quarter.
Some 43 percent of the home loans in IndyMac’s portfolio were made to borrowers in California.
IndyMac said the percentage of loans going through foreclosure rose during the quarter as more borrowers failed to keep up with payments, sell their home or find alternative financing.
The number of homes repossessed by the bank after they failed to sell at auction rose to 257, up from 33 a year earlier and 196 in the fourth quarter…….
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Sprint Nextel 1Q deficit widens, fewer subscribers
Written by admin on May 12, 2008 – 12:40 pm -By DAVID TWIDDY, AP Business Writer
1 hour, 18 minutes ago
KANSAS CITY, Mo. - Wireless carrier Sprint Nextel Corp. said Monday it had a larger first-quarter deficit as revenue fell, it lost more than a million subscribers and it absorbed charges for severance and other costs.
Overland Park, Kan.-based Sprint said its loss totaled $505 million, or 18 cents per share, in the three months ended March 31 compared with a loss of $211 million, or 7 per share, during the first quarter of last year.
Not including a number of one-time charges, including $231 million for severance and asset impairment and $86 million in deal-related costs, the company said it earned 4 cents per share, compared to 18 cents per share in the year-ago quarter.
Revenue fell 7.5 percent to $9.3 billion from $10.1 billion a year earlier.
Analysts surveyed by Thomson Financial had expected earnings of 2 cents per share on $9.4 billion in sales.
Its shares rose 18 cents, or 1.9 percent, to $9.56 in late morning trading after falling almost 3 percent earlier in the session.
Sprint, which has struggled since buying Nextel Communications Inc. in 2005, said its total subscriber base fell by 1.09 million to 52.8 million, including the loss of 1.07 million post-paid customers who pay a monthly bill.
That was actually smaller than the 1.2 million in post-paid losses the company had forecast last quarter.
Post-paid churn, or the measure of customers dropping service, was 2.45 percent during the quarter, an increase from the first quarter of 2007 and last quarter. Average revenue generated per post-paid user fell 6 percent from last year to $56.
“As expected, our wireless business delivered weak financial results,” Sprint Chief Executive Officer Dan Hesse said. “While the business will continue to face challenges in the short term, we are making progress in methodically attacking the sources of our performance issues.”
During the first quarter, the company introduced a $99.99 plan that provides unlimited voice and data services, undercutting by price its chief rivals AT&T Mobility and Verizon Wireless’ similar unlimited plans.
It also has revamped its marketing, which has often been criticized since the purchase of Nextel as being unfocused.
The company said it expected to continue feeling pressure on wireless revenue and would have only “marginal” improvement of post-paid subscriber losses in the second quarter. However, it said it expected its finances to stabilize toward the end of the year.
Stifel Nicolas anayst Christopher King said in a research note he was “somewhat encouraged” by the slightly improved subscriber losses in the second quarter, but added, “the company remains a long way from being out of the operational woods, in our view.”
Hesse told analysts during a conference call that he was pleased with growth in the company’s wireline business, which saw revenues rise 2 percent to $1.6 billion and higher operating profits. The division is largely used to provide Internet services to the business sector.
“Wireline will gain in importance over time as traffic volumes increase and business customers become a more important element of our customer mix and our relationship with the cable companies becomes stronger,” Hesse said.
Sprint also said it was exploring the possible sale of non-core assets and other moves designed to help profitability and ensure the company maintains compliance with its debt covenants.
Asked during the conference call if Sprint was looking to spin off or sell the Nextel business, which has seen the majority of customer defections because of technical issues with its iDEN technology, Hesse said the company remained “committed to our iDEN customer base” but added that, “nothing is off the table completely.”
King wrote that he believed the company has discussed a sale or spinoff of Nextel.
“But we note that it would likely be a very tricky, complicated operational process, and we are very unclear as to whether or not any such plan will come to fruition over the next year or so,” he said.
Sprint also said it may ask its lenders for waivers to its credit facilities but said it expected to remain in compliance with those covenants “over the next few financial quarters while exploring and pursuing these measures.”
Last week, Sprint and Clearwire Corp. announced they had resurrected their plan to offer high-speed mobile Internet service with the help of some deep-pocketed supporters.
The two companies said they will combine their wireless broadband units to create a $14.55 billion communications company, to be called Clearwire, that will continue developing a mobile network based on WiMax technology.
WiMax is similar to the WiFi service found in coffee shops, airports and many homes but able to cover larger areas and supposedly download at speeds faster than the latest cellular networks for movies, games and other data services.
A similar partnership fell through last November. This time, however, the duo is getting help from a group of outside investors, including Intel Corp., Google Inc., Comcast Corp., Time Warner Cable Inc. and Bright House Networks, who will kick in $3.2 billion for the new company.
Other rumors swirling around the company is whether it is a possible acquisition target by Deutsche Telekom, the owner of wireless rival T-Mobile. Neither company has commented on the rumors…………..
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Stocks advance as oil falls, dollar advances
Written by admin on May 12, 2008 – 12:39 pm -By TIM PARADIS, AP Business Writer
7 minutes ago
NEW YORK - Wall Street advanced moderately Monday as a rising dollar cooled some concerns about inflation and helped keep oil prices in check. The Dow Jones industrials at times rose more than 100 points.
The dollar’s gains against other major currencies appeared to help ease some concerns about inflation. A weak dollar can exacerbate price increases, especially since hard commodities like oil become more attractive to investors seeking a hedge against inflation.
The market’s unease about rising inflation and its effect on consumer spending receded somewhat as light, sweet crude wavered, falling 55 cents to $125.41 per barrel on the New York Mercantile Exchange. Oil briefly reached a new trading high of $126.40, but investors seemed shy, for the time being at least, to add to oil’s huge gain of nearly $10 last week. That advance added to concerns about rising prices and their effect on businesses and consumers.
The market also got some encouraging news about the credit crisis from London-based HSBC Holdings PLC, which said its first-quarter profits were up from a year ago although the global banking company took a $3.2 billion write-down on subprime mortgage assets in the United States. The company did echo other assessments that the U.S. was likely to fall into recession this year.
Monday’s gains showed investors are still willing to lay some bets, although some market watchers said Wall Street will still likely see stocks fluctuate as investors try to determine the economy’s direction. Monday’s advance follows a week in which the major indexes all fell as worries about the impact of inflation weighed on investors.
“I think most of the action is behind us,” said Ted Oberhaus, director of equity trading, Lord, Abbett & Co. LLC. “We’ve had a pretty good bull run that carried us up to about 1,400 on the S&P 500 and what we would expect is a little churning here,” he said, predicting further back-and-forth trading.
In midday trading, the Dow rose 101.85, or 0.80 percent, to 12,847.73.
Broader stock indicators also rose. The Standard & Poor’s 500 index advanced 10.37, or 0.75 percent, to 1,398.65, and the Nasdaq composite index rose 31.08, or 1.27 percent, to 2,476.60.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.74 percent from 3.78 percent late Friday. The dollar was higher against most other major currencies, while gold prices fell.
Oberhaus said with the flow of first-quarter earnings reports beginning to dwindle, Wall Street would likely require some big news on the economy — such as a sharp reversal in commodities prices — to dislodge the markets from their current position.
“We’re the majority of the way through the earnings season and it has been relatively productive. With that as a backdrop, I would expect a range-driven appreciation over the next few months,” Oberhaus said.
In corporate news, FedEx Corp. rose 63 cents to $91 after lowering its fiscal fourth-quarter earnings forecast, citing rising fuel costs.
MBIA Inc. posted a $2.41 billion first-quarter loss, as the struggling bond insurer took heavy charges to write down the value of liabilities amid continued deterioration in the credit markets. The stock rose 72 cents, or 7.6 percent, to $10.15 following comments from the company on the strength of its balance sheet.
Research In Motion Ltd. rose $7.98, or 6 percent, to $140.75 ahead of the introduction of its first major new BlackBerry model in more than a year.
Investors will be looking to other readings on consumers this week to determine the toll rising energy costs might be having. Government figures are due on retail sales in April. And retailers including Wal-Mart Stores Inc., Macy’s Inc., JCPenney Co. and Kohls Corp. are due to report first-quarter results.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 407.6 million shares.
The Russell 2000 index of smaller companies rose 10.10, or 1.40 percent, to 730.15.
Overseas, Japan’s Nikkei stock average rose 0.64 percent. Britain’s FTSE 100 rose 0.26 percent, Germany’s DAX index rose 0.47 percent, and France’s CAC-40 rose 0.32 percent……..
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Cablevision buys Newsday from Tribune for $650M
Written by admin on May 12, 2008 – 12:37 pm -By SETH SUTEL, AP Business Writer
2 hours, 37 minutes ago
NEW YORK - Cablevision Systems Corp. is buying the Long Island-based newspaper Newsday from Tribune Co. in a deal valued at $650 million, the companies announced Monday.
Cablevision beat out media mogul Rupert Murdoch, CEO of News Corp., who withdrew his own $580 million bid on Saturday. New York Daily News owner Mortimer Zuckerman had also bid $580 million.
The deal brings Newsday back to local ownership on Long Island. Tribune had been seeking to sell Newsday to lighten an $8.2 billion debt load it took on last year when it went private in a deal orchestrated by real estate mogul Sam Zell.
Chicago-based Tribune will retain a 3 percent stake in a joint venture to be formed containing Newsday as well as several related assets, including Newsday.com, some regional magazines and the free daily newspaper in New York City amNewYork. Cablevision will hold the remaining 97 percent.
The deal will be financed by $650 million in debt provided by Bank of America. Tribune will receive $612 million in cash, another $18 million in prepaid rent for leases of facilities that Newsday will continue to use, and its 3 percent stake in the venture will be valued at $20 million.
Cablevision said owning Newsday will allow the company to better market the newspaper to the many households on Long Island that don’t yet subscribe to it, while tapping Newsday’s expertise in ad sales to help Cablevision’s own cable TV advertising business.
Cablevision, which is controlled by the Dolan family, runs one of the most advanced cable TV operations in the industry and has about 3.1 million subscribers in the New York metro area. The company also owns Madison Square Garden, the NBA’s New York Knicks, the NHL’s New York Rangers.
“We admire Newsday’s strong editorial voice and reputation for quality as well as its leadership in print and online journalism,” Cablevision Chairman Charles Dolan said in a statement.
“We are committed to maintaining Newsday’s journalistic integrity and important position in the marketplace,” Dolan said.
Some investors are concerned about Cablevision’s entry into the newspaper business and its apparent appetite for acquisitions, particularly given the challenges facing newspapers as more advertisers go online.
Its shares fell 32 cents to $24.65 in morning trading Monday.
Newsday is the second major acquisition in a week for Cablevision following its nearly $500 million purchase of Robert Redford’s Sundance Channel cable network on May 7.
That deal didn’t seem to ruffle investors as much given its fit into Cablevision’s portfolio of cable networks including AMC, IFC, WE tv, and a local news cable channel called News 12.
Newsday is the 11-biggest newspaper in the country, according to the latest figures from the Audit Bureau of Circulations, with 379,613 average paid weekday copies in the six-month period ending in March.
Tribune is a major newspaper company that also owns the Los Angeles Times and the Chicago Tribune. It became an employee-owned company last year.
Zell had originally planned to keep the company’s newspapers and TV stations largely intact while selling some other assets such as the Chicago Cubs baseball team.
He changed his mind about Newsday following a rapid deterioration in the company’s newspaper business, which last week reported an 11 percent decline in first-quarter revenues. It’s not yet clear whether Zell intends to sell other Tribune media properties as well.
Cablevision said that with Newsday under its ownership it will be able to offer more diverse packages of advertising while also tapping Newsday’s large variety of online content to offer interactive services to Cablevision’s 2.3 million high-speed Internet customers.
Tribune had been the No. 2 newspaper publisher in the country prior to the Newsday sale, just head of the Sacramento, Calif.-based company McClatchy Co. With the Newsday sale McClatchy is sure to become No. 2, and Tribune No. 3, behind industry leader Gannett Co., which publishes USA Today.
Bank of America acted as the lead financial adviser to Cablevision while Citigroup advised Tribune……….
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