MBIA reports $82 million unrealised loss mainly due to synthetic CDOs

New York-based monoline insurer MBIA said the largest negative impact on its income during 2002 arose from its synthetic collateralized debt obligation (CDO) investments. The majority of its total mark-to-market unrealised loss of $82 million was attributable to synthetic CDOs.

According to MBIA, $70 million of the unrealized loss occurred in the fourth quarter of 2002. The company claimed that approximately one-third of the total $82 million mark-to-market adjustment for last year resulted from the company's revised valuation methodology, and that the remaining two-thirds was attributable to a change in data source and wider spreads.

Though MBIA has ceased to write protection on single names, it had seven single-name investment grade corporate credit default swaps on its books last year. The notional outstandings of these vanilla trades was $276 million. The negative mark-to-market on this position was $4 million at the end of 2002. The company said that by the end of this year it will have just one vanilla position: a double-A rated single name net exposure of $41 million.

Speaking on MBIA’s earnings conference call earlier today, a company spokesman said: “Marking-to-market can provide useful information. But when you pass it through the income statement, it causes artificial distortions.” He added that he expects the mark-to-market value to become positive as the bulk of MBIA’s current synthetic positions reach maturity during the next three to four years.