2011 Could Have Been Worse for MBIA


As 2011 comes to a close, it's a great time to look back at what happened to the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at MBIA (NYS: MBI) . As a key player in the mortgage-bond insurance industry, MBIA suffered greatly during the housing crash. Then later during the financial crisis, thanks to its role in insuring municipal bonds, the company again took a big hit. Since then, though, the company has managed to outlast some of its peers and may now have put the worst behind it. Below, I'll take a closer look at the events that moved shares of MBIA this year.

Stats on MBIA

2011 YTD Return


Market Cap

$2.29 billion

Total Revenue, Last 12 Months

$432 million

Net Loss, Last 12 Months

($243 million)

Debt-to-Equity Ratio


CAPS Rating (out of 5)


Sources: S&P Capital IQ; Motley Fool CAPS.

How did MBIA hold up in 2011?
MBIA was unfortunate enough to find itself in two very painful industry niches in recent years. Like mortgage insurers Radian Group (NYS: RDN) and MGIC Investment (NYS: MTG) , MBIA had exposure to housing through its insurance of mortgage-backed securities -- the same securities that blew up in investors' faces during the financial crisis. At the same time, MBIA also insures municipal bonds, just as Assured Guaranty (NYS: AGO) does and now-bankrupt Ambac Financial did.

Interestingly, some have argued that the existence of this insurance has actually hampered the recovery in housing. Fellow Fool Morgan Housel noted that because private mortgage insurance covers defaults, banks are less likely to eat losses by granting principal writedowns. That often leads to behavior that's not in MBIA's best interest, because losses can get worse the longer a bank waits to take action to resolve a potential problem.

So far this year, though, MBIA has had some good news. An anticipated downturn in muni bonds hasn't materialized, helping the company avoid losses on that front. Moreover, with shares still at very low levels, some analysts see far more upside than risk within the sector.

But that doesn't mean everything's perfect for the company. One problem MBIA faces is potential liability to those who relied on its insurance. Earlier this month, the company paid a $1.1 billion settlement to Morgan Stanley (NYS: MS) to resolve a dispute over credit default swaps on commercial mortgage-backed securities. However, several other banks, including Bank of America (NYS: BAC) , still have suits outstanding against MBIA.

Among financials, MBIA has some promise, but it isn't necessarily your best bet. Let us point you in a better direction. Read the Motley Fool's latest special report on banking to find out which banks the smartest investors are buying now. The report is free, but it won't be there forever, so check it out today.

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At the time thisarticle was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Bank of America. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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