MBIA Capital Shortfall May Be `Likely,' Moody's Says

MBIA Capital Shortfall May Be `Likely,' Moody's Says (Update2)

By Christine Richard

Dec. 5 (Bloomberg) -- MBIA Inc. is ``somewhat likely'' to face a capital shortfall, throwing its AAA credit rating in jeopardy and putting at risk the rankings of the state, municipal and corporate debt it guarantees, Moody's Investors Service said. The shares tumbled as much as 16 percent.

A review of MBIA, the largest bond insurer, will be completed within two weeks, Moody's said in a statement today. Moody's said additional scrutiny of the Armonk, New York-based bond insurer's mortgage-backed securities portfolio caused it to revise its assessment.

``The guarantor is at greater risk of exhibiting a capital shortfall than previously communicated,'' Moody's said. ``We now consider this somewhat likely.''

The loss of MBIA's top ranking would cast doubt over the ratings of $652 billion of municipal and structured finance bonds that the company guarantees. MBIA is among at least eight bond insurers seeking to ward off potential credit-rating downgrades by Moody's, Fitch Ratings and Standard & Poor's. The insurers guarantee $2.4 trillion of debt and downgrades could cause losses of as much as $200 billion, according to Bloomberg data.

``Clearly it's not a good development for the company,'' said Rob Haines, an analyst at CreditSights Inc. in New York. ``The agencies have better visibility about the companies and maybe they've seen something that's troubling or it's just general deterioration in the market.''

Ambac Financial Group Inc., the second-largest bond insurer, Financial Guaranty Insurance Co., the fourth-largest, and Security Capital Assurance Ltd. are also ``somewhat likely'' to have a capital shortfall, Moody's said today. CIFG Guaranty, considered the most likely to fall below the benchmark, was bailed out by parents Groupe Banque Populaire and Groupe Caisse d'Epargne.

MBIA fell $4.31, or 13 percent, to $28.32 at 1:31 p.m. in New York Stock Exchange composite trading.

Liz James, a spokeswoman for MBIA, said the company had no immediate comment.

BLOOMBERG