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Sally Jones
Sally Jones
Articles (580) 

'Zenvestor' Bruce Berkowitz Reduces MBIA, Still Largest Stakeholder

April 11, 2013 | About:

GuruFocus “Guru of the Year 2012” Bruce Berkowitz once said, “We’re always trying to wonder what can go wrong. We’re very focused on the downside.”

With MBIA Inc.’s unresolved bank battles, you have to wonder what could go wrong with the world’s largest bond insurer if the company does not obtain expected billions from banks via lawsuits. Is the company built to last in all environments, especially since Bruce Berkowitz of Fairholme Capital Management reduced his position in MBIA Inc.(NYSE:MBI) by 26.05%, as of the quarter ending March 31, 2013.

Berkowitz still remains the largest Guru stakeholder with 16.3% of shares outstanding and a total of 31,425,820 MBI shares after the trade.

His holding history:

Berkowitz first bought MBI in the second quarter of 2010 at an average price of $7.66 and a gain of 37.1%, the stock’s highest gain in his holding history. With 11 trading quarters since that new buy, the average cost is $9 per share, with a 17% gain.

MBIA Inc. (NYSE:MBI) is an insurance holding company with a market cap of $2.13 billion, a P/E ratio of 1.6, and a P/S ratio is 0.8. MBIA subsidiaries provide financial guarantee insurance, fixed-income asset management, and other specialized financial and advisory services. With MBI up 29% since January, the current stock price is $10.68. The global company has offices in New York, Denver, San Francisco, Paris, London, Madrid and Mexico City.

In March 2013 the New York State Supreme Court upheld a decision to approve MBIA's restructuring that includes a municipal bond unit. A group of 18 banks had challenged the approval. However, the Court rejected the banks' arguments, giving a green light to MBIA’s plan to start a subsidiary public finance guarantee company­­­.

Last month MBIA Inc.’s CEO Jay Brown commented on the four-year battle with banks: "With the Court's ruling now in hand, we look forward to resolving the remainder of our litigation so that we can support the financing needs of towns and cities across America by re-establishing National Public Finance Guarantee Corporation, our U.S. muni-only insurer, as a leader in the U.S. public finance insurance market."

To its advantage the company’s largest competitor Ambac declared bankruptcy, making MBIA the only horse in the bond insurance race. According to Wikinvest, “A large part of MBIA's solvency depends on billions of dollars that MBIA expects to receive from a lawsuit against banks.”

Only time will tell if the banks will have to pay up and make a difference to MBIA’s bottom line. For now, with this recent trade, it looks as though Guru Berkowitz is practicing his own philosophy of focusing on the possible downside.

As of April 10, 2013, Berkowitz’s Fairholme Capital Management lists 20 stocks, with no new stocks, in a portfolio valued at $6.9 billion, and a quarter-over-quarter turnover of 1%. The portfolio is heavily weighted with 68.2% in the financial services sector.

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About the author:

Sally Jones
Sally Jones writes about Real Time Picks. She says, "I truly enjoy watching the Gurus in realtime and telling their story."

Rating: 3.3/5 (4 votes)


Jonmonsea premium member - 4 years ago
P/E is 1.6??

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GuruFocus has detected 1 Warning Sign with MBIA Inc $MBI.
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