Finance, Accounting and Control Case Study

MBIA, the Largest Municipal Bond Insurer in the US: Credibility at Stake?

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Abstract:
Municipal Bond Insurance Association (MBIA) is the largest municipal bond insurer in the US and a subterranean powerhouse in the US financial market. The key to MBIA's success is the rare and coveted rating of 'Triple-A' given to its insurance arm by the credit rating agencies. In 2002, Bill Ackman, a short seller, raised questions about MBIA's business model and in particular the credibility of its 'Triple-A' rating, but those allegations were dismissed as baseless. Later in March 2005, MBIA announced that it had received subpoenas from the Securities Exchange Commission and the New York Attorney General Eliot Spitzer, seeking documents relating to the company's accounting policies. The company even restated its profits for the previous six years.

Pedagogical Objectives:

• To discuss MBIA's business model and the credibility of its 'Triple-A' rating

Keywords :  Municipal Bond Insurance Association, Municipal bonds, Municipal bond insurer, Credit ratings, Financial instruments, Special-purpose vehicles (SPV), Accounting scandal, Reinsurance, Restatement of profits, Corporate governance, Business model,Finance Case Study, 'Triple-A' rating, Bill Ackman, Rating agencies, Accounting policies