What a difference a year makes.
In his 2006 Letter to Shareholders, MBIA Inc. CEO, Gary Dunton, sounded like he was practically on top of the world. And in many ways he still was.
Business after all was booming, as everything he touched seemed to turn to gold. Bond insurance was its old self then–as boring as ever.
In fact, on March 16th 2007, just two weeks after the first cracks in the sub prime world began to show themselves, Dunton wrote the following:
"Our Company finished 2006 in a strong position. Our franchise is healthy: we held to our rigorous underwriting and pricing discipline, added significantly to our capital position, enhanced the quality of our portfolio of existing business and had our Triple-A ratings reaffirmed by the major rating agencies. We refortified the senior management team, divested our remaining ancillary businesses and made headway on a number of strategic initiatives designed to create value for the Company. Institutional Shareholder Services again ranked MBIA first among the S&P 500 for excellence in corporate governance practices, as it did in 2005. We are well positioned to take advantage of promising long-term opportunities for growth, and remain optimistic about our future!"
Of course, it really wasn’t long after that that the wheels started to come off that old boring business, as the markets began to realize that bond insurance is only as good as the ability of the insurer to actually meet its claims.
And as the CDO mess began to be recognized, those same Triple-A rating’s that Dutton bragged about in his letter increasingly came under scrutiny. The results weren’t pretty.
Shares of the company plunged under that weight as the company with a bright future lost over 80% of its market cap in 12 short months. Ouch.
But that reign of terror ended today as Dunton finally "resigned", chased out by a building wave of defaults that now threatens to sink the entire industry-and the market value of every piece of debt it insures.
That’s the calamity now that everyone involved in the morass is trying to avoid, since a downgrade of MBIA and others would set off a daisy chain of events that would undoubtedly rattle the markets.
So who is Dunton’s replacement at this critical juncture?
It’s Jay Brown, Dunton’s predecessor.
Here is what Dunton said about him in the same letter to share holder last year:
"Finally, I will miss my mentor and colleague, Jay Brown. Jay has decided not to stand for reelection to the Board and will leave MBIA in May 2007, as he stated when he became executive chairman in 2004. It would be hard to overstate his contribution to MBIA since taking the helm as CEO in 1999, in terms of building our credit culture, strengthening our balance sheet, shaping our portfolio and unifying our management team. Additionally, Jay’s commitment to employee development and training is perhaps one of the best long-term investments the Company has made. He instilled employees with an unqualified commitment to the highest level of integrity in all that we do and in protecting our Triple-A ratings, and this, I believe, will be his legacy. I am indebted to him for his advice and counsel over the years, and wish him every success as he moves on to the next chapter of his life."
So it’s out with the new in with old at the troubled bond insurer. And it looks like Mr. Brown will have to wait some time now to open that "next chapter of his life" after all.
Nonetheless, the crisis within the industry rolls on no matter who’s keeping the seat in the corner office warm.
What a difference a year makes.
Just ask Gary Dunton.