MBIA stops quarterly dividend payment; CEO warns of a bumpy ride

By Lisa Kerner

Charlotte, N.C., Feb. 25 - The board of directors of MBIA Inc. voted to eliminate the quarterly dividend to preserve some $174 million on an annualized basis - the amount MBIA paid out in dividends in 2007.

New chairman and chief executive officer Jay Brown recommended stopping the dividend as a way to strengthen MBIA's financial resources, increase its operating flexibility and aid in the effort to strengthen MBIA's triple-A ratings.

Brown, a large individual shareholder of MBIA, noted he's the first one to "feel the pinch" from this action.

"But I think this, coupled with my recent commitment to buy a substantial number of additional shares, demonstrates my absolute commitment to be aligned with our owners and to maximize long-term value," Brown said in a company news release.

On Jan. 9, the dividend had been reduced to $0.13, although no dividends were paid out at that rate, the release stated.

In an open letter to MBIA shareholders, Brown said he's had a busy first week back in which a number of important decisions were made "to guide the transformation" of the business and allow the company to achieve the goals that he laid out.

MBIA will, in a five-year period, restructure to insure public and structured finance business from separate operating entities, Brown's letter stated.

The company has already decided to cease ensuring new derivative credit contracts from its insurance companies and suspended the writing of all new structured finance business for approximately six months.

Brown also told shareholders "it makes no sense to allow foreign competitors with U.S. domiciled operations to operate without paying their fair share of U.S. taxes." As a result, Brown has committed at least $1 million to support the Coalition for a Domestic Insurance Industry.

"I still don't look good in Bermuda shorts but we will eventually have to move the company if the U.S. tax code is not modified," Brown said in his letter.

Addressing executive compensation, Brown said shareholders will have input.

"Our commitment to 'say on pay' is to lead rather than be compelled, and we will provide an opportunity for our owners to vote on the board's significant decisions on executive pay beginning at the 2009 annual meeting," Brown said.

"Everything we are working towards right now is centered on regaining stability in these volatile times," the CEO added.

With the continuing uncertainty in the mortgage markets, Brown said he expects a bumpy ride over the coming months and perhaps longer.

Brown commented on William Ackman's announcement of Pershing Square Capital Management, Inc.'s Open Source Model, saying that Ackman "will stop at nothing to increase his already enormous personal profits as he systematically tries to destroy our franchise and our industry."

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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