Tag: ackman

This is becoming the investing world’s Ali vs. Frazier. Legend Martin Whitman takes on Bill Ackman for another round in his latest letter:

I am torn on this one. The only mutual fund I own is Whitman’s Third Avenue Value (actually my son has it in his Coverdale) and I am a huge fan of Ackman and do watch his action closely. So who is right? I have documented Ackman’s stance on both MBIA (MBI) and Ambac (ABK) here in the past in detail so let’s go to Whitman’s retort.

Whitman states “MBIA is now strongly capitalized. It ought to qualify easily for an AAA rating with a $17 billion claims paying ability. If so qualified, MBIA would be in a position to underwrite a large amount of profitable new business.”

He then says there are 3 main reasons this may not happen:
1- Capricious regulators (they actually seem to get as much of his wrath as Ackman does)
2- NY State insurance Regulators and Elliot Spitzer
3- Ackman and his “bear raiders”

He then says that while Ackman is an “articulate advocate” (this contrasts to the “slick salesmen” comment he made late last year) who is wrong for three reasons.

1- The “cheapness” of AAA insurance is not a broken model
2- GAAP analysis of the insurers portfolio by a “mark to market approach”. Whitman claims this is “arrogant nonsense” and that they should be judged on “what percent of obligations default and how they work out”. He sarcastically points out the the market has “correctly predicted 9 out of the last 5 recessions.”
3- Debt senority: Whitman says that MBIA’s structured debt appears to be almost all “senior” or even “super senior” and the risk of default is minute despite what Ackman and others claim.

So, what do we think? They are both right. Ackman has been dead on to this point and Whitman will be right long term. Ackman correctly predicted the current situation the insurers find themselves in. He was the first to make the call in 2002 and has not wavered in his belief.

Whitman will be right long term because there are too many parties with too much at risk to let the insurers fail. Now, there will be a massive dilution of shareholder interest along the way, but they will not fail.

That being said it does not mean that shares may not see low single digits before then so if you are going to invest, do so with a very strong stomach.

With all the plans out there and all the big fish billionaire investors like Buffett, Whitman and Ross circling around, my guess is Ackman will take his winnings and leave the tale very soon, if he has not already. He will does so as a huge winner in this fight.

Please read the full letter here:

Disclosure (“none” means no position):Third Avenue Value Shareholder and now long MBIA through the fund, Ackman fan

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I really could not beleive it when I first read it. In a letter to shareholders MBIA (MBI) Chairman & CEO Jay Brown actually penned the following

“But as the leading monoline, we are also a convenient and attractive target for self-interested parties such as Mr. William Ackman. Many of you have asked me in the past few days whether there is something personal between us. In actual fact we have many similarities. We are both extremely passionate in our beliefs and are persistent in overcoming all obstacles in terms of reaching our objectives. The real difference is that I am leading a regulated institution that provides security, jobs and peace of mind to tens of thousands of institutions and millions of individual investors. Mr. Ackman’s objective is less complex; he will stop at nothing to increase his already enormous personal profits as he systematically tries to destroy our franchise and our industry. His campaign against us has increased our cost of capital, but his intent to force a collapse has no chance to succeed.”

Let’s just forget that Ackman is giving 1/2 the profits to charity so this is not the shameless “self interest” thing Brown weeps of. Let’s also forget that Ackman first began predicting the current CDO situation in 2002. Let’s also forget that were it not for the self-serving bailout by the banks, MBIA and Ambac (ABK) would have indeed suffered the rating agencies downgrades and the very extinction Ackman predicted.

Now that we have put the actual events up to this point aside, aren’t facts a better defense to Ackman than essentially calling him names? Wouldn’t sitting there and pointing out the errors of his research that has been out there for a long time be more a effective way to rebut him? It would, but if Brown were to just look at numbers and profits and little things like that, he would find folks siding with Ackman in droves.

Is it any wonder to him that Berkshire Hathaway’s (BRK.A) Warren Buffett only wanted 1/2 the business? The answer is the other half is junk..

Brown would have been better served to ignore Ackman, not sit there and pout about him.

Disclosure (“none” means no position): None

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MBIA (MBI) immediately dismissed Bill Ackman’s plan for them yesterday after barely a cursory view.

“Like Mr. Ackman’s open-source model, his statements in the media and the barrage of letters he has sent to regulators and the rating agencies — which contain half truths, innuendo and faulty analysis — this proposal is simply a continuation of Mr. Ackman’s campaign to profit from his short positions and credit default swaps in the bond insurance industry,” MBIA said.

“Our preference, like the regulators, continues to be finding a solution that would be in the best interest of all policyholders,” MBIA said.

Here is where the hypocrisy comes in. In the Wall St. Journal MBIA indicated it agrees with a spokesman for the New York insurance department who said Mr. Ackman’s proposal would split the company and likely lead to a substantial downgrade for the structured side.

Splitting bond insurers into two sectors — one focused on lower-risk municipal bonds and another to handle higher-risk collateralized debt obligations — allows shareholders of the lower-risk holding company to benefit while holders of the CDOs suffer.

Thus the dismissal of Ackmans plan. It should be noted this was probably done before it was read but that is another issue.

Here is the rub. Later is the same article it is noted that MBIA Chief Executive Joseph W. Brown Jr, upon returning to the the CEO post, vowed to work with regulators to restore confidence in the company. He also said he would consider splitting the company.

Now, on one hand we have the company coming out and dismissing Ackman because his proposal would spit the company then we have the CEO coming out and saying he would consider that very split idea.

The bottom line is they have no plan. What they are waiting for is a State or Federal bailout. They have been “talking” to insurance regulators for months now and nothing has been forthcoming from them. There has been no plan, only stonewalling.

They have dismissed plans from Berkshire Hathaway’s (BRK.A) Warren Buffett and now Bill Ackman. Wilbur Ross has stated he was interested in investing in them but talks with management have gone nowhere.

Here is the thing. Ackman, Buffett and Ross are all self made billionaires (maybe not yet for Ackman) and all are obviously smarter than those in charge of the now failing bond insurers. The fact that they cannot get anywhere with management ought to be a sign… a bad one..

Disclosure (“none” means no position): None

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Pershing Square’s Bill Ackman presented his plan for the bond insurers MBIA (MBI) and Ambac (ABK) today.

First, here it is:

Unlike the Buffett that would essentially leave the SFV (structured financial vehicle) portion of the company’s to shrivel away, Ackman’s plan calls the bluff of the company’s.

Rather than have the proceeds from the Municipal portfolio flow to the holding company, Ackman is saying “let them support the losses at the SFV portfolio”. Assuming the losses in SFV are as small as management says they are, this ought to work.

Now, the plan falls apart if the losses are as massive as Ackman claims they will be. In this case, the Muni proceeds will not cover the losses and the house of cards come tumbling down. This is what Ackman is banking on.

Either way he wins because if the Muni portfolio is providing liquidity to the SFV side, there are no dividends to flow up to the holding company’s. Without the dividends, there is no income or revenue for the insurers. Would you buy shares in a holding company with no revenues?

Me either….

Disclosure (none means no position): None

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