If MBIA is AAA, Britney Spears is pure as snow

ANALYST'S VIEW

Fitch Ratings says that its business is providing the world with "independent, timely and prospective credit opinions.'' Judging by its AAA rating on MBIA, it looks like Fitch is 0-for-3.

On November 5, Fitch said it would spend four to six weeks analyzing whether the bond-insurance unit of MBIA and six other so-called monoline insurers are worthy of the AAA imprimatur. Four to six weeks? Can anyone tell me a good reason why it should take four to six weeks to figure this out?

Then there was the big news on December 5 from Moody's Investors Service. A month after saying MBIA was "unlikely'' to fall below its AAA capital benchmark, Moody's changed that to "somewhat likely'' and said it would opine further on MBIA and the rest of the bond-insurance industry within a couple of weeks. Standard & Poor's also is studying the matter.

"When we have concluded our analysis, we'll publish it,'' Moody's managing director Jack Dorer said. "What we're trying to understand is the risk-adjusted nature of the portfolio.'' Somebody here, please just state the obvious: If MBIA is AAA credit, then Britney Spears is fit to rejoin the Mousketeers.

This horse isn't just out of the barn. It crossed the county line last Christmas and was killed trying to dodge traffic. We're talking about AAA here, just a notch less bankable than you'd expect from Uncle Sam.

Maybe it should take this long to determine what the right rating is.

However, nobody should need this long to figure out that AAA is the wrong rating, anymore than it should take weeks of testing to ascertain that I'm unfit to be quarterback for the New England Patriots.

Not even close
The market knows this isn't a close call. Last week, credit-default swaps tied to MBIA Insurance's bonds were 193 basis points, according to data compiled by Bloomberg. In other words, it cost about $193,000 to buy a contract protecting $10 million of bonds from default for five years. That implies about a 15 per cent probability of default "� for a company rated AAA.

Credit protection on another AAA-rated bond insurer under review, Ambac Assurance cost 289 basis points, implying about a 22 per cent default probability. By comparison, credit- default swaps for a real AAA company such as Johnson & Johnson were 15 basis points, implying the chance of default is a tenth of a per cent.

MBIA's stock is down 59 per cent this year and trades for 42 per cent less than its book value, showing that equity investors don't believe its balance sheet either.

The last time Moody's published a full report on the company, on October 5, it said MBIA Insurance's AAA rating and the AA2 rating for its parent reflected, among other things, their "consistent profitability.'' That was some weeks before MBIA reported a $36.6 million net loss for the third quarter, which included a $63.7 million pretax loss from its insurance operations.