Bill Ackman was born son of Lawrence David Ackman a chairman of a New York real estate financing firm. He received a Bachelor of Arts and magna cum laude from Harvard College and MBA from Harvard Business School. In 1992 Ackman created Gotham Brothers with a fellow Harvard graduate. In 2003 he was investigated and no wrongdoing was found.Edit Remove Move
MBIA operates its insurance subsidary, MBIA Insurance Corp. The insurance company's AAA rating is critical to the success of the entire enterprise/. Were the insurance company dongraded by even one notch, even the company acknowledges its business could be materially impaired.Edit Remove Move
<a href="http://video.cnbc.com/gallery/?video=1478845130" target="" rel="">http://video.cnbc.com/gallery/?video=1478845130</a><br>Edit Remove Move
At the end of September 2002 MBIA had $5.5 billion of shareholders' equity supporting $764 Billion of outstanding guarantee liabilities. That means each $1 in equity supporting $139 in liabilities.Edit Remove Move
CDO: Collateralized Debt Obligation, is a pool of interest paying assets, such as mortgages, bonds, and loans, that can be cut into pieces by risk classes and sold to investors. MBIA guarantees CDOs for a premium, although they originally only guaranteed low risk CDOs they began to expand coverage to riskier CDOs in 2000. Since the collateral for these CDOs were normally risky assets (such as subprime mortgages) Ackman believed the rating agencies overlooked these and MBIA was more risky than appeared. There is also some accounting issues, MBIA didn't have to disclose exactly what was in the individual C.D.O.'s that they insured.
SPV's or Special Purpose Vehicles are subsidiaries of companies that have their own financing. Many SPV's are used to limit risk from the parent company to the SPV so that if the project of the SPV goes bad then it will not take the whole company down. Bill Ackman believed that MBIA was using SPVs to hide much of the risk that the company was actually taking.
MBIA had almost $9 billion of assets and liabilities in five off-balance sheet special purpose vehicles. These were supported by only $125,000 in third party equity. Ackman believed a decline in MBIA's credit rating would cause the SPV's assets to be less than their liabilities.
March 24 (Bloomberg) -- As the taxi pulled away from Grand Central Station on a late November afternoon in 2002, Bill Ackman was bracing for a fight. The 36-year-old co-founder of a hedge fund firm called Gotham Partners LP in New York had been summoned to a meeting with Jay Brown, the chief executive officer of MBIA.Edit Remove Move
March 24 (Bloomberg) -- Bloomberg's Christine Richard talks with Deirdre Bolton about her new book "Confidence Game: How a Hedge Fund Manager Called Wall Streets Bluff," which details hedge fund manager William Ackman's prescient bet against MBIA Inc. five years before the worst financial crisis in decades. (Source: Bloomberg)Edit Remove Move
A timeline comparing the stock prices of MBIA and the S&P 500 index.Edit Remove Move
Not a defender of Ackman. Point of this chart is sizing/weighting is more important than timing. http://stks.co/aze9Edit Remove Move
Jan. 31 (Bloomberg) -- It was the $109,000 photocopying bill that hedge fund manager William Ackman says made him realize how much he'd read and underlined before betting against bond insurer MBIA Inc. in 2002. His law firm charged him for copying 725,000 pages of financial statements and other documents, 140,000 of them about MBIA, to comply with a subpoena.Edit Remove Move
This article overviews Ackman's relentless attempts to try to persuade people to believe MBIA did't deserve it's AAA rating in the years after 2002. He talked to the S.E.C., the NYS Insurance Commission, and the NYS attorney general. He also held meetings with Moody's, Standard & Poor's, and Price Waterhouse Coopers. Many people on Wall St. criticized Ackman, they say his attacks were an effort to undermine the confidence of MBIA's ability to insure bonds. In this was Ackman was trying to enact a self-fulfilling prophecy, if confidence in MBIA is undermined since people believe they will go bankrupt then the company will go bankrupt. Edit Remove Move
Each of you, according to your recent public statements, is in various stages of updating your ratings of the bond insurers. Unfortunately, however, your previous ratings assessments have erred materially in their omission of certain critical analysis and the inclusion of outright errors in your work. As you conduct your most recent revisions of your analysis on the bond insurers, it is vital that you conduct a thorough assessment of all aspects of the bond insurers’ business lines, their reinsurers, and investment portfolios so that the rating decisions that you ultimately publish can be relied upon by capital markets participants.Edit Remove Move
On April 4, 2008 Fitch cut MBIA's credit rating to AA despite MBIA asking Fitch not to rate their credit anymore. Then on June 4, 2008 Moody's announced that it would review MBIA's credit rating. On June 6, 2008 S&P announce that it changed it's rating from AAA to AA. On June 19, 2008 Moody downgraded MBIA from Aaa to A2. On November 7, 2008 Moody futher downgraded MBIA to Baa1. On June 25, 2009 MBIA was further downgraded to Ba1 which is a speculative grade.Edit Remove Move
June 2009: Moody cuts to speculative grade
MBIA breaks up the company into two separating companies. Jay Brown the CEO of MBIA tries to sue investment banks for hiding risk of MBS, mortgage backed securities that they insured. As an example, MBIA claims that of the 4,700 loans it insured from Countrywide, and later defaulted, 91% lacked verification of income or had invalid appraisals. Edit Remove Move
Bought credit-default swaps against $2 Billion worth of MBIA debt.
Short positions on MBIA stock
He went short around $45 and covered around $4.
These are all the toolsets you will need for this semester.Edit Remove Move