MBIA Inc (MBI) 2010 Q1 法說會逐字稿

Good morning and welcome to the MBIA Inc. first-quarter 2010 financial results conference call.

At this time all lines are in listen-only mode to prevent any background noise. After the prepared remarks from the Company there will be a question-and-answer session. (Operator Instructions)

I will now turn the call over to Greg Diamond, Managing Director of Investor Relations at MBIA.

Thank you, Christy. Welcome to MBIA's conference call for our first-quarter 2010 financial results. We are going to follow the same format as last quarter's call. Jay and Chuck will provide some comments prior to holding a question-and-answer session.

We have posted several items on our website including our first-quarter 2010 Form 10-Q and our quarterly operating supplement for the first quarter. The information for accessing the recorded replay of today's call is included in our financial results press release, which is also available on our website.

Our company definitive disclosures are incorporated in our SEC filings. The purpose of today's call is to discuss some of the points raised in our most recent 10-Q to facilitate a greater understanding for investors. The 10-Q also contains information that will not be addressed on today's call.

Please note that anything that we say on this call is qualified by the information provided in the 10-Q and our other SEC filings. You should read our Form 10-Q as it contains our most comprehensive disclosures as of March 31, 2010, about the Company and our financial and operating performance.

Today's Q&A session will be handled by Jay Brown, CEO, and Chuck Chaplin, President, CFO, and Chief Administrative Officer.

Now for our Safe Harbor disclosure statement. Our remarks on this conference call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in our forward-looking statements.

Risk factors are detailed in our 10-K which is available on our website at www.MBIA.com. The Company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. In addition, the definitions of the non-GAAP terms that are included in our remarks today may also be found on our website.

Before we begin the Q&A session Jay and Chuck will provide some introductory comments. Jay?

Thanks, Greg. Once again this quarter our world has redefined volatility and demonstrated to us a new level of risk. The debt crisis, of which Greece is only the most immediate and visible example, the unexplained stock market trading snafu last Thursday, the earthquakes in Haiti and Chile, and the potential impact of offshore drilling accident in the Gulf of Mexico all confirm to us just how risky our world is.

At MBIA we have endured more than our share of risk in the past three years. Yet despite the unprecedented global events, there were some clear signs over the past quarter that volatility in our business is in fact beginning to subside.

First, the macro economy is showing some positive signs across many dimensions. US GDP has grown now for three consecutive quarters and the employment picture is showing more positive signs than it has in the past few years. Housing prices appear to be stabilizing in most areas of the country as well and the March Moody's Commercial Property Price Index was up compared to December 31.

Our key second lien RMBS early-stage delinquency statistic has now dropped to 24% from year-end and 40% from its peak in January of 2009. These consensus trends, if they continue, bode well for our future credit performance in MBIA Corp. as well as National and our wind-down operations.

Second, many of the institutions who originated mortgage securitizations are beginning to own up to some of their responsibilities to replace ineligible collateral. There is also a growing population of parties alleging that misrepresentations were committed by the arrangers and sellers of many CDOs.

It's important to remember that a significant portion of the major losses that MBIA has sustained over the past three years has more to do with collateral that was misrepresented and doomed to fail rather than the recession. Our litigations against the major seller-servicers of RMBS are now in the discovery phase and in the largest single case the court has ruled that we may proceed against Bank of America as well as Bank of America Home Mortgage Subsidiary, formerly known as Countrywide.

The publicity around testimony given at a financial crisis inquiry commission by representatives of two major mortgage originators, the reserves disclosed by at least one, and a settlement of claims by another all validate the position that we have consistently taken in our RMBS litigations.

On the CDO, side while the fraud claims we made against Merrill Lynch were dismissed at this juncture, our breach of contract claim is going forward.

The public discussion about misrepresentation in the formation and marketing of CDOs in general is supportive of our cases against other CDO arrangers. Prevailing in these litigations is very important to MBIA's long-term financial strength and we do expect that we will ultimately prevail.

Finally, litigation continues to hold National back from providing important additional capacity and liquidity to the US municipal bond market. The primary lawsuit against us, an Article 78 action in New York, challenging the New York Insurance Department's approval of National's creation is on track to be resolved in the latter part of 2010. We strongly believe that the conclusion will be that the department's approval was appropriate and warranted and that MBIA Corp's financial adequacy was thoroughly reviewed at that time.

There are also challengers seeking to unwind the department's approval by suing us outside of the prescribed Article 78 process. As previously disclosed, we have challenged the lower courts ruling that these other cases can proceed and the court of appeals oral arguments are now scheduled for early June. Meanwhile National stands strongly as the sole municipal-only bond insurer in the United States and it's only a matter of time before that is fully recognized by the market.

Cutwater was created by reorganizing our investment management operations. It provided both income and dividends to the hold co this quarter. Cutwater is our current growth opportunity and is performing both positively and consistent with our expectations.

While these favorable developments and expectations may have factored into the recent improvement in our security prices and derivatives on them, we still have a long way to go to rebuild shareholder value. Chuck will talk about our first-quarter financial results in greater detail momentarily but the important headline is that MBIA's adjusted book value was basically flat, declining slightly to $36 per share due to modest assumption revisions which led to slightly higher loss expectations. We continue to focus our management attention on growing ABV over the next couple of years which will ultimately be reflected in our stock price.

Lastly, from a housekeeping perspective MBIA held its annual shareholders meeting last week. All of the directors have been reelected and our compensation-related proposals were also approved. Everything was passed with approval rates in excess of 85%. We appreciate the support and understanding of our shareholders and we remain committed to improving shareholder value over time.

Now Chuck will provide an update on our financial progress through the first quarter of this year.

Thanks, Jay. This quarter there is a significant change to our financial statements. We are consolidating 49 new variable interest entities in compliance with the revised accounting guidance. This change affects many of the balance sheet and income statement accounts and makes comparisons across periods and across companies more difficult.

When you add that to the confusion created by the mark-to-market on insured credit derivatives we end up with financial statements that are highly complex for reporting on our very simple insurance businesses. So my plan today is to focus in on five elements of our financial results and reporting.

First, I will comment briefly on the mark-to-market on insured credit derivatives which is a driver of our reported GAAP results. I will talk about the impact of the new accounting rules for variable interest entities and then turn to how to find financial information that describes our business dynamics beyond the GAAP financial statements.

Fourth, I will provide our perspectives on loss reserves and credit impairment developments. And, finally, talk about liquidity.

So starting with the GAAP basis, in the first quarter we had a $2.2 billion pretax loss and a $1.5 billion net income loss. This is a swing from a $985 million pretax and $700 million net income gain in the first quarter of 2009. Both quarter's results were driven by the results of the mark-to-market on insured credit derivatives.

In the first quarter of last year we had a $1.6 billion pretax gain in the mark-to-market and this year we have a $2.2 billion loss in the same item. If you exclude these unrealized gains and losses on insured credit derivatives, we had a pretax loss of $624 million last year and a pretax loss of $48 million this year, which is an improvement of over $570 million.

So why exclude the mark-to-market? First, in the ordinary course of business we do not guarantee or collateralize the fair value of our insured credits. We only guarantee timely payments.

The mark is not a direct estimate of future payments like our loss reserves and it is also heavily affected by current price trends, liquidity, and trading positioning. Also the mark is highly sensitive to what has been a very volatile input, the changing market views of the credit risk of MBIA. This is the largest single element in the quarterly changes in our marks over the past year.

The changes in marks per quarter have been, going back five quarters, positive $1.6 billion, positive $400 million, negative $800 million, positive $400 million, and this quarter negative $2.2 billion. Just as we do not believe that our credit quality deteriorated by $1.6 billion worth in the first quarter 2009 we don't believe that it has improved by $2.2 billion in this quarter.

The second topic is the impact on our financials of new rules on consolidation under ASU 2009-17 or in old English, FAS 167. MBIA Corp has wrapped the obligations of many structured finance vehicles, which are called variable interest entities in the accounting guidance. They are special purpose entities that are set up to allocate asset performance among an array of interest holders.

We collect insurance premiums and, if things go badly, we bear losses. As the potential for loss increases generally so does our ability to direct the significant activities of the VIE. This is the way virtually all of our insurance policies work. When deals perform poorly we either record a loss reserve or a mark-to-market depending on whether we issued the insurance via financial guarantee or via credit default swap.

The FASB being has now added another form-over-substance change. Now if we gain a legal right to direct the significant activities of a VIE, which will generally be upon an event of default or similar trigger event, we are required to consolidate the assets and liabilities of that VIE and treat it as another subsidiary of the Company. The prior insurance or derivative accounting is then removed from our financial statements.

Nearly all of the deals that we are now consolidating fall into this bucket. As a result of this new standard we are now consolidating 29 ABS CDOs, 11 residential mortgage securitizations, and nine other transactions; 49 in all. We have also deconsolidating two deals that had been consolidated under prior accounting standards where we do not have the power to direct the significant activities of the vehicle.

The accounting for these VIE subsidiaries is very different from insurance or derivatives accounting. In fact, when a deal qualifies to be consolidated we erase the entire imprint of the deal on our balance sheet and income statement; the premium receivable, the DAC, the loss reserve, the unearned premium reserve all go away. In their place we have the assets and liabilities of the VIE and although we still have an insurance policy in force, it disappears for GAAP accounting purposes.

If we were accounting for these deals which formally got insurance accounting on an amortized cost basis there might not be any real difference to our shareholders' equity or net income because the process of determining insurance loss reserves and asset impairments could lead to similar results. However, we will not be using amortized cost accounting because we don't have access to all the information that would be needed to book keep the assets and liabilities. Therefore, we have implemented fair value accounting for most of these assets and liabilities and that leads to very different financial results.

The net impact of all of this is that at the time of adoption on January 1, 2010, there is an increase in consolidated shareholders' equity of $27 million. For the first quarter the VIEs represent pretax income of $44 million on a consolidated basis as the change to mark-to-market on the liabilities in the deals was more than offset by increased putback recoveries on consolidated RMBS deals. Going forward we expect that the mark-to-market nature of the assets and liabilities here will result in additional reported earnings volatility.

It is critical to remember that nothing changes in our business as a result of this new accounting. Our contractual obligations, liquidity position, and economic capital adequacy are all unaffected by the consolidation.

Between the mark-to-market on insured credit derivatives and the impact of VIEs our GAAP financial statements have become further removed from the mechanics of our insurance contracts and sometimes counterintuitive. Over time we may all become more facile with discerning the underlying economics from these statements but in the meantime we have attempted to remedy this by directing your attention to supplemental disclosure of three kinds.

One is I will reference now some adjustments to the GAAP accounts that we think make sense; two, we have our ABB concept that we have been reporting for some time; and three, there is our statutory financial statements. These three approaches give the similar results that Jay already prefaced this. We produced a modest operating loss this quarter with lower insured and investment losses than the averages of the past several quarters.

As I mentioned our GAAP pretax income was a loss of $2.2 billion. If you exclude the impact of the unrealized loss on insured credit derivatives that yields a consolidated loss of $48 million.

At the segment level National's pretax income was $132 million. The business operated as expected except that we had $26 million of loss incurred on a combination of student loan and healthcare deals. This is modestly above the quarterly average since National's inception and reflects the continued failure of the auction rate markets and trends in the macroeconomy. We do believe that a recovering economy, improving values, and lower unemployment will help moderate the loss trend in National over time.

The structured finance and international business conducted in MBIA Corp had a loss of $2.3 billion or $78 million before the mark-to-market on insured credit derivatives. This is driven by insured losses which affect the loss and loss adjustment expense line item in the income statement. That line was $189 million.

At Cutwater it produced $3 million of pretax income in the first quarter of its relaunched existence. Our third-party assets under management grew by about $750 million in the quarter and the unit also paid a dividend to the holding company of $9 million. This dividend was in part a balance sheet clean up but we do expect that Cutwater's financial results will permit it to pay ongoing dividends to MBIA Inc.

The corporate segment had a $42 million loss. This is above its run rate of loss due to a $27 million mark-to-market on warrants issued to Warburg Pincus at the time of its equity investment in 2008. The wind-down operations incurred a loss of $66 million pretax of which $27 million is associated with other-than-temporary impairments on the investment portfolio.

The trend in so-called OTTI is generally positive. OTTI averaged $150 million a quarter in the first half of 2009 and has been less than $30 million a quarter since then.

Liquidity was solid in the wind-down operations and the segment repaid $145 million of its intercompany loan from MBIA Insurance Corp. That loan, which had a balance of $2 billion at year-end 2008, was $1.45 billion outstanding as of March 31, 2010.

To give some more insight into our economic performance we also provide the change in adjusted book value in our press release and in our 10-Q this quarter. The ABV takes the change in book value per share and reverses the effects of GAAP accounting that are inconsistent with the economics of our insurance activities. More specifically it adjusted out the affects of unrealized gains and losses and the effects of consolidating the insured's variable interest entities and then adjusts in the effect losses on insured credit derivatives and VIEs.

ABV also incorporates the present value of future revenues and expenses on the insurance contracts that are already in force and in the wind-down operations segment ABV is simply the present value of future net cash flows from business that was booked in the past.

At the enterprise level ABV per share decreased by $0.34 per share or 1% this quarter. The loss is primarily due to incurred losses on RMBS and impairments of insured derivatives partially offset by National's earnings.

At the segment level National added $0.17 per share while MBIA Corp. lost some value, about $0.20 a share. Cutwater had a $0.01 of net income but then dividend at $0.04 per share to the holding company which reduces its ABV. Wind-down and corporate operations lost approximately $0.17 and $0.11 per share, respectively, for the reasons I touched on above.

Overall the business fundamentally operated pretty close to breakeven in the quarter.

Another place one can look for information about the performance of our insurance companies is in their statutory accounts. The statutory accounting framework is free of marking to market insurance policies for which there is no market and does not consolidate any of the beneficiaries of our insurance policies. So it's a more accurate reflection of the business model.

There are a number of less significant differences between statutory and GAAP accounting for insurance which are detailed in attachments to the press release and on our website as well as in the 10-Q.

On a statutory basis National earned $95 million and ended the quarter with $2.1 billion of statutory capital as well as $5.6 billion of total claims paying resources. Its capital base exceeds AA standards for both S&P and Moody's.

MBIA Corp had a $48 million loss in the quarter and ended with nearly $3.5 billion of statutory capital and $6.1 billion of claims-paying resources. While capitalized at a below investment grade level, we believe that MBIA continues to have adequate capital and assets to meet all of its expected obligations as they come due. The bottom line on this is that our insurance businesses operated near breakeven on a statutory basis.

A couple of comments on MBIA Insurance Corp's insured losses. On the RMBS side we have been making lower payments than our expectations in each of the last several months. Early-stage delinquencies are also declining but at a somewhat slower pace than our expectations.

So compared to our earlier projections more loans are going delinquent, but fewer are going all the way through to charge-off. In determining our loss estimates we are reflecting the higher-than-expected initial delinquencies but at this point we are not taking any credit for the lower charge-offs. The result is around $410 million of additional expected future payments.

We also reviewed over 7,000 files for putbacks in the quarter and we found similar levels of breaches of reps and warranties as we have observed in earlier loan file reviews. These reviews result in an increase in putback-related salvage of about $340 million so the net impact of losses on RMBS is approximately $70 million. A portion of our putbacks, or about $110 million, are reflected in the variable interest entities accounts.

The same loss assessment processes that we used on RMBS and all other cases are also used on deals we wrapped in CDS form. And the result was an increase in expected loss of $207 million in the quarter; $84 million is due to deterioration of subprime collateral within our multi-sectors CDOs. We also recognize the impairments on a part of our commercial real estate exposure totaling $123 million.

As delinquency rates in the portfolio have risen we have also included more disclosure about our CMBS pool and CRE, or commercial real estate, CDO exposure in the 10-Q this quarter. There is substantial uncertainty around this portfolio. As of March 31 over 7% of the mortgages in CMBS were delinquent but less than 1% had been liquidated with weighted-average losses of only about 23 basis points.

The attachment points of the bonds referenced in our pools are on average a significant multiple of that cumulative loss to date. Additionally, each pool has its own deductible. We believe that improving macroeconomic conditions will positively impact credit performance over time in this portfolio.

The total of our insurance losses is summarized in our press release in a table. Combining the loss in LAE expense which is shown in that line on the income statement, the offset in the VIEs which is included in the VIE section of the income statement, and recognized impairments on insured credit derivatives which is not reflected on the GAAP income statement show a total loss for MBIA Insurance Corp of $288 million in the first quarter.

Finally, a comment on liquidity. MBIA Corp's liquidity position continues to be closely tied to the pace and magnitude of RMBS loss payments. Consistent with our loss reserves we are now expecting higher future payments on our RMBS exposures even though current payments are somewhat below expectations.

MBIA Corp held $962 million in cash and short-term investments at the end of the first quarter. We have had and we expect to continue to have success at converting some of our illiquid assets into cash to increase our cushion against expected future liquidity demands. We believe that MBIA Corp's cash and other resources will adequately provide for anticipated cash outflows.

At the holding company level the corporate segment had $321 million in cash and short-term investments at March 31. When we fully receive our tax refund for the 2009 tax year our cash position and expected cash flows should cover hold co needs through 2015, even if no dividends are received from the Company's insurance, asset management, or advisory business subsidiaries.

Finally, and I referenced this before, liquidity in our wind-down operations segment continues to be adequate.

And with that we will open the phone to your questions.

(Operator Instructions) Darin Arita, Deutsche Bank.

Good morning. Question on Article 78 and the rating agencies. To the extent that Article 78 is resolved in a favorable way for MBIA, how quickly would National be able to get its ratings to the AA level?

In terms of both Moody's and S&P's existing capital models there are no barriers to an immediate upgrade. Both -- in the case of S&P we are in excess of AA and in the case of Moody's against current models we are in excess of AAA standards.

How quickly they respond to the resolution of Article 78 is an open question. But it is the key factor that they cited upon transformation when the litigation emerged as the reason that they were not assigning higher ratings at that time.

Okay. And looking at MBIA Insurance Corp the statutory capital remained very stable from the end of the year despite the losses on a GAAP basis. It does seem that the statutory capital might be a more relevant metric given all this GAAP accounting noise. Can you talk about the losses incurred on a stat basis during the quarter and how that differs from the GAAP losses?

Sure and good morning, Darin. The losses on a GAAP basis are more -- sorry, on a statutory basis are more inclusive than those for GAAP. So you have basically three components -- you have RMBS, you have our CDOs and CMBS, and then there are miscellaneous other losses.

On the RMBS side you have an expectation of future payments that is a bit over $400 million. And I reference this it is because early delinquencies are not falling as fast as our earlier rejections, we increased the expectation of future payments, and then we are not taking any offset for the fact that current payments, that it is on loans that are charged off at the other end of delinquency pipeline, we are not taking any credit for the fact that those payments are somewhat below our expectations over the past several months.

So you have an increase in net expected future payments of a little over $400 million and then you have an increase in the value of expected putbacks of a little over $300 million. The net impact is about $70 million with the difference being due to rounding.

The putbacks this quarter are related to about an increase of 7,000 files in the number of files reviewed. We are right around 40,000 files reviewed at this point and we have taken the exact same approach to evaluating these 7,000 as we have with the prior 30-some-odd thousand. We categorize them in terms of the severity of ineligibility. Those that are most ineligible, most obvious, are included in putback recovery that we have recorded.

So you have that bad impact on RMBS. Then you have the CDOs, our asset-backed CDOs, where we are increasing the expectation of loss by about $80 million which is related to continued underperformance of the subprime collateral in the deals.

Earlier we had increases in loss on our ABS CDOs. Really a lot of it was due to the underperformance of the CDO collateral or the expected underperformance of CDO collateral. Now we are seeing a continued increase in expected severity of subprime losses in those deals so that is about $80 million.

Then you have about $120 million related to the CMBS portfolio. Again, just reflecting -- we think that in the distribution of possible outcomes that most likely there is no loss or de minimus loss in that portfolio but there is a probability that there is a more substantial loss. And that is what is reflected in the $120 million that we are incorporating there.

Outside of those elements there is another $12 million of loss associated with miscellaneous credits in MBIA Insurance Corp and National has about $26 million of losses in the quarter, primarily driven by a couple of transactions in the student loan and healthcare industry.

So what we have tried to do from a disclosure perspective is in the press release itself we have a table that sums all of the impact on MBIA Insurance Corp sort of without regard to what accounting they attract. And shows a total loss for the quarter of $288 million so that is kind of the impact on ABV of credit underperformance in MBIA Insurance Corp. Again, for National it's about $26 million.

Okay, got it. Just one last one in terms of the ALM business. Can you talk about the strategy to close the gap there?

Sure. Our primary strategy for closing the book value deficit has been purchasing MTNs at discount. We said that the discount on the MTNs is lower than the discount on the assets sold to buy the MTNs as a closure of the book value deficit. And if you look at it over time, we have a pretty good track record of seizing those opportunities and managing the book value deficit through this period where you have had OTTI impairments of the assets in the portfolio.

So the deficit is right around $1 billion as we stand today and the amount of MTNs outstanding is probably $2.5 billion. So we expect that as there are opportunities on a reverse inquiry basis to purchase some of those bonds we will continue to close the deficit. Over time there may be opportunities also to help close the deficit by investing in the portfolio somewhat more aggressively. At this point we are managing for optimal liquidity in that portfolio so we are not doing that at this point.

All right, that makes sense. Thank you.

[Alfie Lomsten], [CQS].

Could you just give us an idea about what the attachment point is on your average book on CMBS, please?

If you go inside the new disclosure that we added where we tried to provide some detail, you can see the attachments range from a low of 5% on the all AAA composed CMBS portfolio ranging up to a high of 35% on the lower level tranches that were assembled into then rated AAA securities. We have had no erosion on any of those deductibles to date.

Okay, thank you.

Arun Kumar, JPMorgan.

Good morning. Chuck, a couple of questions for you. The first one is in the ALM business and the intercompany loan that you have, the $1.4 billion. I think in the last quarter you had mentioned that it was your intention to repay that loan later this year in November.

Arun, could I ask you to speak louder? It's hard to -- we are not catching every word.

Sure. The question I had was related to the ALM business and the intercompany loan, the $1.4 billion. You had indicated earlier that you wanted to repay that loan I think in November of 2010. Is that your current intention?

And the related question is in your ALM business could you comment on the fair value of the assets that you have and what part that plays in the asset liability mismatch that we have right now?

Sure. First, with respect to the intercompany loan, the date at which it is to be repaid is November 2011 and we have been working toward that for some time. The intercompany loan doesn't have contractual principal payments but we have been making optional paydowns of the loan as there is excess liquidity in the ALM portfolio.

It is a reasonably expensive facility when you consider the way the assets are invested today because it pays LIBOR plus 200. So to the extent that we have liquidity in excess of what we think is needed for debt buyback type activities we have been paying down the loan. So the balance is, as you have said, it's down from $2 billion to about $1.45 billion.

As to the fair value of the assets, they are shown in the 10-Q. I believe the net number is about $5 billion against the liabilities. We have seen an improvement in the unrealized loss in that portfolio that is pretty substantial. I think if you go back to early 2009 sometime in the first quarter, maybe as of March 31, I think we were at the -- kind of at the low point where the OCI associated with this book was about $2.5 billion and now it's ground down to where it's around $500 million.

We are continuing to see some improvement in the OCI and of course at the same time the total footings of the business have been coming down as the debt is retired. The other thing to keep in mind is that we have taken substantial OTTI on these assets in this portfolio and some of them are actually improving in value as well. We have had one or two sales of assets that resulted in gains relative to the written down book values.

So both of those trends are kind of going in the right direction. I can tell you that our game plan for ALM is in part dependent upon a continued grind down of that OCI unrealized loss.

I think the other point that you raised was we do have a deliberate mismatch between our assets and liabilities. Our assets are much shorter at this point in time due to the large cash position we are holding. That will probably be the case until the $1.4 billion loan is paid off in 2011.

As Chuck mentioned, at that point in time we would probably take a more aggressive position on the asset side to again match the assets against the planned maturities and increase the yield and eliminate the negative arbitrage we have been running between the asset and liabilities in that book over the past year and a half.

Sure. Just a couple of other questions related to the claims payments that you made in Q1; I think the number was around $460 million of outflows for payments. I think that is probably a little bit higher than what you had anticipated in your earlier modeling maybe six or nine months ago.

Could you give us any guidance as to what you expect to pay for the full-year 2010 in terms of cash outflows for RMBS, (inaudible), and other products? And the other question I had was related to CMBS. Have you given any thought to releasing what your ultimate losses could be on your CMBS portfolio? I think this is the first quarter where we saw some losses on your CMBS products. Any guidance on that would be helpful.

Sure. Thanks, Arun. Couple of things; on payments, to answer one part of your question very directly, no I don't want to make a forward-looking statement about payment expectations in 2010 except to say this. We think that 2009 is going to prove to have been by far the most significant year in terms of payments on RMBS transactions and that payments will continue to drop from those highs. I think the period of maximum payments was either first or second quarter 2009 and they have been falling ever since.

We are currently actually making payments each month that are somewhat below the projections that we had made for those months. Then we are -- but when we think about the forward payments that we will make we are taking account of the fact that initial delinquencies are somewhat higher than we expected so we increase our expected future payments for a that. But we are not taking credit for, if you will, the fact that current payments are lower than expectations.

So we think that we have a more conservative forward look on payments than we have had in the past and we have adequate liquidity to cover those positions.

In terms of the CMBS question the $123 million that we booked this quarter is our best current estimate under our models of what our ultimate losses will be on CMBS.

There is a wide range of estimates on what is going to happen on CMBS securities. I am certain as they have seen a number of different people model those you can range all sorts of delinquency, ultimate loss, ultimate severity on those. And you will have to run your own models to make your determinations.

We have been watching this for the last three years. We have run a consistent set of models across that entire time period. And this quarter was a period where the amount of loss that we would project under various scenarios when we weight them exceeded the amount of premium that is due under those particular contracts which results in us under our accounting guidance 167 to book the losses as appropriate. That is where the $123 million comes from.

Sure, thank you. One last question, in terms of a counter-party though you indicated that several of them have taken provisions related to the mortgage market over the past several years. One, do you think that the recovery is that you are going to -- that you book (inaudible) total $1.5 [billion]? Do you think that number could increase significantly given what the other people have been doing or the other institutions have been doing?

And, secondly, in terms of the recoveries themselves that you have booked so far, have you recovered any of the market or this is the longer-term recoverable that you hope to get back?

Our current estimate that we have on the -- that we recorded is $1.9 billion as of the third quarter. That is our best estimate of the minimal amount that we expect to recover in the variety of different actions that we have going at this point in time.

None of those cases will go to trial until 2011. Our current assumption is that we would not realize those recoveries in terms of the magnitudes, the bulk of the money, until 2012 and later unless there is earlier settlements. We have received money in the past; a very limited amount of money on a limited number of putbacks before the litigation was initiated. We haven't received any funds on any litigated cases since we began the litigation.

In terms of other actions out there, as you would expect the bulk of the recoveries that have been actually observed for putbacks have occurred with the Freddie, Fannie and FHA. I have been asked by a number of investors how come they are being successful in getting their putbacks at this point in time and you have not yet been successful. And the answer is that very simple is that Freddie, Fannie, and FHA have a very powerful incentive which is that if you don't place loans going forward with them -- if you want to place loans going forward with them then you probably have to honor, pass contractual representation in warranties.

And we have discussed the process that Fannie and Freddie use with their folks to see how it compares to the process that we use, both from examining the loans and also in terms of the accounting. And both approaches are consistent with our own.

The main difference in our case is the majority of the people who originated mortgages for MBIA in the pools that we securitized have chosen not to honor the putbacks at the level that we have put the loans back to them, which is why we were forced to initiate litigation against them.

Thank you.

(Operator Instructions) [Nuresh Shaw], [Aventi].

Hi, good morning. I have two questions for you. One on the tax refund number; last year you had mentioned MBIA Inc. tax number would look something like $222 million but I see the current guidance it has gone down to $137 million. If you could explain a reason for the lower estimates here.

And on the second one in terms of hold co liquidity, the outflows you are expecting about $155 million so if you can break that number. Thank you.

On the first question, the tax refund, we had earlier estimated that our total tax refund for the year would be about $500 million. And that included the capture of all of the five-year carryback that was authorized in stimulus bills last year as well as capturing all of our earlier paid alternative minimum tax.

As we have now filed our tax return, it is apparent that we will capture all of the five-year carryback but we will not capture the AMT credit, so that results in a lower tax refund. It goes from about $500 million to about $390 million and a lot of that impact is reflected in the tax refund proceeds that go to the holding company. So that is the reason for that difference.

I should note that the AMT credit is not like the other elements of the stimulus bill. It's not use it or lose it. It continues to be a positive tax attribute for us that we will have the ability to use when in the future we have taxable income in excess of AMT amounts for those relevant years.

Your other question about the holding company liquidity, I would have to ask you to repeat that number that you were focusing on there.

I was looking at the outflows and the number there is about $155 million for up to end of 2010. So I would just like to know what kind of break up in terms of the debt service and operating expenses.

Sure. What we have is the -- what we are showing in the supplement is really the operating cash flow really for the first quarter. So if you -- I guess I wouldn't take those numbers and annualize them, but in general the holding company has a total fixed cost for the year of around $100 million of which about $40 million is operating expenses. The balance is interest.

In 2010, though, we also have a debt maturity in June which itself is, I want to say, $90 million or $100 million. That is kind of the picture that we are looking at for 2010.

Okay, thanks a lot.

Rob Hadler, Tejas.

Good morning, gentlemen. A quick question for you just on claim obligations looking forward. I know that you guys had in your K anticipated about $2 billion in gross insurance claim obligations at Corp for 2010 and I would just ask do you guys still expect that number for 2010 at the corporate level given what happened during the first quarter here?

Yes, that is our current expectation with respect to claims. So it is including all of the changes that we made to loss reserve expectations at first quarter.

So that number hasn't changed since it was reported in the K?

Right.

Okay, great. Thank you, guys.

This concludes the Q&A session. Greg, do you have any closing remarks?

Thank you, Christy. While we have taken questions from all callers in our previous conference call, today we did decline to allow a representative from one of our plaintiff actions in one of our litigations to ask a question on this call. Otherwise all questions were taken and there were no parties remaining in the queue at the end of this conference call.

Thanks to all of you who have joined us for today's call. Please contact me directly if you have any questions. I can be reached at 914-765-3190. We also recommend that you visit our website, www.MBIA.com, for additional information.

Thank you for your interest in MBIA. Good day and goodbye.

Thank you. This concludes today's conference call. You may now disconnect.