MBIA questions motive behind Pershing's release of Open Source Model

By Lisa Kerner

Charlotte, N.C., Feb. 14 - MBIA Inc., in a letter to New York Superintendent of Insurance and other regulators, cited deficiencies in the Open Source Model recently announced by Pershing Square Capital Management, LP.

In the letter, MBIA said the model is described as a "security by security" analysis, a less specific approach than MBIA's loan by loan analysis used in formulating loss reserves and capital forecasts.

In addition, the model fails to take into account the structures of collateralized debt obligations and MBIA's contracts that provide it with protections and does not account for the tax impact of losses, the company said.

MBIA's Gary C. Dunton said Pershing's William A. Ackman "has a large short position in the shares and credit default swaps of Ambac and MBIA by his own admission" and Ackman's letter to regulators is "intended to influence the prices on those interests to his gain."

On Jan. 31, Pershing announced version 1.0 of an Open Source Model containing extensive detail on the collateralized debt obligation and related exposures of the insurance operating subsidiaries of both MBIA and Ambac Financial Group Inc.

As previously reported, the goal of Open Source Research is to provide all market participants with equal access to primary source data, enabling them to construct their own view of losses without having to rely on rating agencies or the bond insurance industry.

Pershing announced its Open Source Research project in a letter to state and federal regulatory authorities.

The Open Source Model can be customized to allow users to estimate MBIA's and Ambac's losses using their own assumptions.

Pershing Square is a registered investment adviser focused on mid-cap and large-cap public investments.

Ambac, a New York-based holding company, has subsidiaries that provide financial guarantee products and related services.

Armonk, N.Y.-based MBIA, through its subsidiaries, provides financial guarantee insurance products, credit protection products and investment management services to public finance and structured finance issuers and investors and capital market participants.

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