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Monica Wolfe
Monica Wolfe
Articles (757) 

Guru Favorite Bruce Berkowitz Slashes Stake in MBIA

June 11, 2013 | About:
Bruce Berkowitz maintains his status as a favorite among the gurus by his impressive track record as well as for his knack for making successful bets on the right companies. The guru is known for concentrating his investments in a relatively small number of companies, and has even discussed that he believes that the more diversified a portfolio is, the more likely its performance will be average.

This specific nature of Fairholme Funds’ portfolio brought in a 35.81% return in 2012, representing a 20.4% excess gain over the S&P 500’s performance for the last year. As of March 31, 64.3% of Fairholme Fund’s portfolio was made up of companies from the Financial Services sector of the market. And even more recently, Berkowitz has been slashing his holdings in one of the companies found in this sector.

On May 31, Berkowitz reduced his holdings in MBIA by 92.84%. Berkowitz sold a total of 29,175,720 shares of MBIA at an average price of $14.25 per share, representing a 5.07% impact to his portfolio. Since his sell the price per share of MBIA has dropped 4%. The guru still maintains 2.25 million shares of MBIA, dropping it to one of Berkowitz’s smaller holdings. The shares Berkowitz now owns represent just over 1% of MBIA’s shares outstanding.

Berkowitz bought into MBIA during the second quarter of 2010 at an average price of $7.66 per share. Since that buy, the price per share of the company has jumped 79.4%.

During the first quarter of 2013 Berkowitz decreased his holdings of MBIA by 26.05% by selling a massive total of 11,069,600 shares at an average price of $10.02 per share. Berkowitz ended the first quarter holding on to 31,425,820 shares of MBIA. Prior to his recent selling of MBIA stock, the company was one of the guru’s largest holdings.

Bruce Berkowitz’s holding history of MBIA:

Berkowitz’s reduction of MBIA came right as Fairholme took on a $500 million stake in Fannie Mae and Freddie Mac. Berkowitz reported to CNBC in regards to his new position:

The time to restructure Fannie and Freddie is upon us, sustaining our nation's economic recovery requires it. On behalf of the hundreds of thousands of Fairholme shareholders who helped to rebuild American International Group, Bank of America, CIT Group, General Growth Properties, MBIA and others after the Great Recession – we stand ready to do our part.

About MBIA:

MBIA, headquartered in New York, is a holding company whose subsidiaries provide financial guarantee insurance, fixed-income asset management and other specialized financial services. These activities are managed through three business segments: United States public finance insurance, structured finance and international insurance, and advisory services. The company’s subsidiaries consist of Cutwater Asset Management, MBIA Insurance Corp., National Public Finance Guarantee Corp. and Trifinium Advisors.

Recent Happenings at MBIA:

MBIA will get approximately $1.7 billion as part of a deal to end five years of litigation against Bank of America and its Countrywide unit over claims of defective securitized mortgage loans.

In Berkowitz’s January letter to shareholders Berkowitz had the following to say about MBIA:

MBIA parent company debt is 33.9% of the Fund. We expect MBIA’s lawsuits against Bank of America and its division Countryside over representations and warranties on mortgages insured by MBIA to settle. A positive result should lift MBIA bonds. A negative result appears to be priced in to today’s marketplace.

In March, the New York State Supreme Court upheld a decision to approve MBIA’s restructuring that includes a municipal bond unit. There was a group of 18 banks that fought this approval, but the court rejected their arguments, and gave MBIA permission to start a subsidiary public finance guarantee company.

In regards to this decision MBIA CEO, Jay Brown, said, “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. insurer, as a leader in the U.S. public finance insurance market.”

Financials of MBIA:

MBIA has a market cap of $2.53 billion; its shares were traded at around $13.65 with a P/E ratio of 2.00 and a P/S ratio of 1.20.

In MBIA’s first quarter financial results, the company reported:

· An adjusted pre-tax loss of $20 million for the first quarter of 2013 compared to the pre-tax loss of $548 million for the first quarter of 2012.

· Their net income available to common shareholders was $164 million, or $0.84 per share, compared to $10 million, or $0.05 per share, for the same quarter 2012.

· The company’s adjusted book valued was $30.56 per share on March 31 compared to $30.68 per share at December 31, 2012 and $32.00 per share on March 31, 2012.

You can view MBIA’s complete financial statement here.

MBIA’s P/S and P/B ratios:


The company’s price in comparison to its P/E ratio:


The financials of MBIA show unstable revenue growth and earnings growth.

Revenue per share:


EBITDA per share:


Based on the Peter Lynch Valuation of MBIA, the company appears to be undervalued:


Insider Activity:

A week before Berkowitz’s cut his holdings of MBIA, the company’s CEO Joseph Brown sold a significant 749,456 shares of his company’s stock. These shares traded at $14.50, bringing in $10,867,112 for the CEO. Since his sell, the price per share has dropped 5.86%. Brown still holds on to at least 700,000 shares. This insider sell is the first insider transaction reported for the company since September 2011.

There are eight gurus that hold positions in MBIA. Click here to see these gurus’ holding histories of MBIA.

You can see Bruce Berkowitz’s complete portfolio here. Also check out his undervalued stocks, high growth companies and top yielding stocks.

You can also find more information about the gurus' trades on the GuruFocus Real Time Picks page.

Rating: 3.6/5 (7 votes)


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