MBIA's stock fell 23% to $20.89, on volume of 27 million shares. The 30-day average daily volume is around 10.5 million. In intraday trading, the stock fell to $18.84, the lowest level since January 1995.
CDOs, or collateralized debt obligations are a type of complex credit product backed by bonds, mortgages and other assets. CDO-squared, which are riskier, are CDOs where the underlying portfolio includes tranches of CDOs.
MBIA, the world's largest bond insurer, also said it has exposure to $30.61 billion of CDOs it insures, according a statement on the firm's web site.
Morgan Stanley analyst Ken Zerbe, in a note to clients, said: "We are shocked that management withheld this information for as long as it did."
"This new disclosure completely changes our view of MBIA being a 'more conservative underwriter' relative to Ambac," Zerbe said. "Granted, MBIA's CDO-squareds are high-grade while [Ambac Financial Group Inc.]'s are mezzanine, but it likely won't make much difference as the underlying subprime losses continue to rise."
Ambac's stock lost 1.8% to $26.96.
The disclosure came after Standard & Poor's downgraded on Wednesday ACA Financial Guaranty Corp. to junk status and changed the rating outlooks for Ambac, MBIA, XL Capital to negative from stable, citing concerns that the performance of insured nonprime residential mortgage-backed securities and collateralized debt obligations of asset backed securities would continue to worsen.
"We had originally questioned how Moody's and S&P could have taken a more negative view of MBIA than Ambac, given our analysis suggested Ambac had a more risky portfolio," Zerbe said. "Now we know -- MBIA simply did not disclose arguably the riskiest parts of its CDO portfolio to investors: $8.1 billion of CDO-squareds."
T.J. Marta, fixed-income strategist at RBC Capital Markets, said "the potential ramifications of [MBIA's disclosure] are hard to overstate."
"The negative ACA news yesterday was expected, as ACA was perceived as the 'weak animal' of the bond insurer 'herd.' The rising potential that MBIA becomes impaired is a much worse event," he said.
But at Citigroup, analyst Heather Hunt said MBIA's CDO disclosures are "not as bad as perceived." Hunt said of the $8.1 billion disclosed, $5.4 billion was originated in 2006 and 2007 and the exposures are "already accounted for in the rating agency reviews."
"This is an extremely volatile situation, but we believe that as more information comes out, the exposure will not be as bad as it seems," Hunt wrote to clients. "We estimate over $7.5 [billion] after-tax losses are priced into the stock."
Shares of other financial guarantors also fell sharply Thursday.
Hamilton, Bermuda-based Security Capital Assurance Ltd. tumbled 12.2% to $3.95, Ambac fell 1.7% to $27,
MGIC Investment Corp. declined 10.1% to $22.01, PMI Group Inc. dropped 5.7% to $12.54, and Radian Group lost 5.8% to $10.33.
Triad Guaranty Inc. dropped 6% to $9.02 and American International Group fell 1% to $56.30 and Old Republic International Corp. fell 1.8% to $14.42.
XL Capital Ltd. fell 5.1% to $50.03.
Wanfeng Zhou wz/tk1
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