More credit woe for bond insurer

The collapse of the US housing market has rocked markets

US bond insurer MBIA has posted a loss for the first three months of the year, suffering from its exposure to risky US mortgage-backed debt.

It made a net loss of $2.4bn (£1.2bn) in the period ending 31 March. The year before it made a profit of $198.6m.

MBIA guarantees investments linked to US home loans, which have slumped in value as defaults hit record highs.

There had been fears the credit crisis may have impacted banks harder if firms such as MBIA were unable to pay out.

MBIA boss Jay Brown called its results "disappointing" and said they reflected "developments in the credit markets".

The New York firm blamed most of its losses on a $3.6bn unrealised loss from insurance policies mostly linked to the deteriorating US housing market.

Confidence knocked

MBIA raised $2.6bn in the quarter and cancelled its dividend to preserve its top credit rating, which is vital for it to generate new business.

It said this gave it sufficient cash to cover its "maturing liabilities in 2008 and beyond".

"We have ample liquidity," Mr Brown added.

"Our balance sheet is built to withstand credit stress levels many multiples of what we're experiencing now, and our business model is proving that we are adequately capitalised to satisfy any potential claims on our insured portfolio," he said.

Firms like MBIA and Ambac are at the heart of the financial system, insuring billions of dollars of municipal bonds.

But confidence in these institutions has been knocked after they expanded aggressively into risky debt investments during the US housing boom.