Monoline Death Watch: MBIA Continues to Put Executives First, Refuses to Downstream Cash to Insurance Sub

MBIA's conduct continues to be shameful, yet the company is not getting the pillorying it deserves, at least from the media. Its latest bit of misbehavior: the company has reversed itself on its decision to remit $900 million of the proceeds of highly dilutive fundraisings to its insurance subsidiaries.

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The latest stunner is that the money raised in MBIA's last, hugely-dilutive equity sale is being held at the parent company. For those who have not followed the monoline saga, that's scandalous.

The whole purpose of the fundraising was for the parent to then downstream the proceeds to the insurance subsidiaries. That's where the insurance is written, that's where the capital shortfall is.

So why is MBIA hoarding cash at the parent level? Well, executives (along with other corporate charges) are paid out of the parent company's books. The subsidiaries can dividend cash up only if they are profitable OR get permission from their regulator.

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So what does the holding of so much cash at the parent level mean? Aside from being a shameless case of duplicity, it says one of two things, neither pretty. First, they expect losses for the foreseeable future, and expect the regulators to prohibit dividend payments too. But withholding the entire $1.1 billion is an admission of how bad they expect things to get. Or second, they expect the regulators to put MBIA into runoff mode, and are keeping their cash to support the parent level empire that would otherwise be starved out of existence. But if so, the representations made by management about the soundness of the company are false.