Well-respected value investor Martin Whitman has invested 2.51% of his famed Third Avenue Value Fun in shares of bond-insurer MBIA (NYSE: MBI), putting him at odds with another great value investor, William Ackman, who has been a vocal critic of the company. Whitman's position in the company amounts to 1,600,497 shares -- a substantial drop from the two million shares he owned when he wrote his third quarter letter to shareholders.The 82-year old Whitman devoted a substantial chunk of the letter to defending his MBIA stake, saying that the company appears to be "very well financed" -- a claim William Ackman has disputed vigorously.
Whitman added that his fund "would probably not lose money if ... MBIA were to go into run-off rather than remain going concerns. Run-off, i.e., liquidation, simply is not a likely outcome, however."
A key part of Whitman's argument seems to be that much of MBIA's losses have been mark to market losses -- which aren't real losses:
The real losses to MBIA and Radian will be determined not by marks to market, but by (a) the percentage of the portfolios that suffer money defaults, plus (b) how those money defaults work out after recoveries from foreclosures, restructurings, refinancings and reinvestments.
However there's an argument to be made that those mark to market losses are indicative of the market's concerns about "future real losses." That's why the mark to market losses are happening!
To read the shareholder letter in its entirety, click here (PDF file -- may take awhile to load). To view a list of Third Avenue's holding, click here.
Elsewhere in the letter, Whitman offered some interesting perspective on the mortgage mess, coming from his 50+ years following markets: "The mortgage meltdown-housing collapse seems nothing new for the U.S. economy. During the last 60 years, virtually every sector of the American economy has gone through depressions as bad as anything that occurred in the 1930s."
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Reader Comments (Page 1 of 1)
3-03-2008 @ 5:09PM
David Huston said...
Isn't MBIA also heavily involved in "credit default swaps", along with JP Morgan, Citigroup and Bank of America who apparently have many TRILLIONS of dollars invested in the same swaps? If so, and if as reported by the NY Times 16% of the $45 Trillion in credit default swaps are in CDO's, why isn't that peril shared by all participants, including MBIA?
3-04-2008 @ 10:36AM
Kurtis said...
Martin Whitman isn't immune to losing money. MBIA is a train wreck and Whitman is keeping his fingers crossed things don't get worse. MBIA is going to make a lot of rich people considerably poorer. It's well financed for this quarter, MAYBE. More than likely all it's capital reserves will be used just to cover first quarter losses. How's it going to raise capital to cover all the losses next quarter and the one after that? It can't run to the equity markets again, it's stock price is too low. MBIA will slowly sink to obscurity as a penny stock which is really where it rightfully belongs.