This story made me laugh:

Note the statement made by MBIA's CFO: The company is "not in a tenuous situation".

Let's consult the dictionary first (Merriam-Webster):
Tenuous - adjective.
1) Thin or slender in form, as a thread.
2) Lacking a sound basis, as reasoning; unsubstantiated
3) Thin in consistency; rare or rarified
4) Of slight importance or significance; unsusbstantial
5) Lacking in clarity; vague

The CFO is telling the truth on this front, in that 1) MBIA is not slender, it's leveraged to the max; 2) Let's skip that one; 3) The story that MBIA is a part of is system-wide and not unique or special; 4) Not really important because they have pretty much been excommunicated from financial godliness after losing their AAA rating, and; 5) MBIA's financials speak for themselves - the company is in a shambles and CDS prices reflect the likelihood that the firm will go bust soon.

However, if you take a look at the full statement released on the newswire...(

Apparently the firm is still solvent and able to meet its financial obligations... for now. I've said it before and I'll say it again: The devil is in the details. MBIA had to liquidate substantial holdings in order to pony up on their latest payments, and they have 3 or 4 quarters left of juice in them until they are officially insolvent. This obviously reflects the ongoing problems in credit markets, and with many firms scrambling to window-dress their balance sheet via short-term borrowing (see LittleGuy123's post on Libor gapping higher), there is no light at the end of the tunnel.

The investment implications are that financials will continue to underperform, and that the deleveraging process that recently began in developed countries will continue, meaning more money printing by the sickest countries like the U.S. and the U.K., and thus further downward pressure on USD and GBP.


MBIA Has Sufficient Assets to Meet Collateral Call (Update2)

By Christine Richard

June 30 (Bloomberg) -- MBIA Inc., whose credit rating was reduced five levels by Moody's Investors Service, said it has enough assets to come up with $7.4 billion of collateral and payments triggered by the downgrade.

``MBIA is not in a `tenuous situation','' Chief Financial Officer C. Edward Chaplin said today in a statement.

MBIA's asset management unit sold $4 billion of investments in the second quarter and the company has sufficient eligible collateral and cash to satisfy any additional requirements, the Armonk, New York-based company said. MBIA hasn't sold municipal bonds to generate money, the company said.

Moody's reduced MBIA's insurance rating to A2 from Aaa on June 19, triggering clauses in some contracts that require the insurer to post collateral or repay investors.

The company said today it will record a pretax loss of $300 million on the sale of securities.

MBIA pared losses in New York Stock Exchange composite trading after the announcement. The stock fell 37 cents to $3.80 at 2:19 p.m. after trading as low as $3.62. The shares were down 93 percent in the past year before today.

Media Reports

MBIA said it issued the statement in response to media reports about the collateral posting.

MBIA faces a ``tenuous situation'' as the company seeks to cover payments and collateral calls triggered by Moody's downgrade, Fitch Ratings analyst Thomas Abruzzo told Bloomberg News last week. Fitch last week withdrew its MBIA rating after the company stopped providing it with information.

The Wall Street Journal reported June 26 that MBIA was selling $500 million of municipal debt to raise cash to meet collateral postings.

In addition to its main business of insuring bonds, MBIA also manages assets for clients such as municipalities.

The asset management unit issued guaranteed investment contracts and medium-term notes, which carried AAA ratings because they were backed by the company's insurance unit, according to company filings. The unit makes a profit by investing in lower-rated securities that have higher yields, filings show. The downgrade of the insurance subsidiary triggered provisions in the investment contracts requiring MBIA to post collateral or repay investors, which include cities and states.

MBIA's portfolio liabilities declined to $24.1 billion as of June 27 from $25.1 billion on March 31, MBIA said today. The liabilities consist of $15.8 billion in guaranteed investment contracts, $7.3 billion of medium-term notes issued by MBIA Global Funding LLC and $1 billion of fixed-term collateralized repurchase agreements, MBIA said.

The medium-term notes, which have an average life of 5.3 years, don't have collateral requirements and aren't subject to termination payments, the company said.

To contact the reporter on this story: Christine Richard in New York at [email protected]

Last Updated: June 30, 2008 14:24 EDT