Mark-to-market accounting

As the company has often stated, the mark-to-market, which is a GAAP concept, is a less reliable measure of credit performance of our insured portfolio, while impairments are a more reliable measure. In the first quarter, the company identified $827 million of impairments, while in the fourth quarter of 2007 the mark-to-market included impairments of $200 million.

The impairments are due to the erosion of subordination and ratings migration. The total impairment for the multi-sector book (including multi-sector CDO squareds) was $1.0 billion. Even here, the market appears to overstate potential credit degradation. While it is conceivable that worst case losses may be greater than $1.0 billion, market conditions would have to worsen substantially from MBIA’s expectations for this to happen.

The current level of MBIA’s stock price suggests that the market is assuming that MBIA will incur a total of $11.7 billion in pre-tax housing-related losses, or an additional $9.6 billion in losses, on top of the $2.15 billion recognized to date. As these implied losses are on a net present value basis, it would actually suggest that the market’s estimate of additional losses in MBIA’s portfolio materially exceeds even the $9.6 billion number.

The company offered its calculation of book value per share of either $24.18 or adjusted book value per share of $42.15.

MBIA Inc. (MBI: chart) shares rose 4% or 41 cents to $9.84.