Bond insurer MBIA Inc. will restate its earnings for the past seven years, as well as set aside $75 million in anticipation of settling with regulators over an accounting probe into defaulted bonds.
MBIA said that the $75 million figure comes from ongoing discussions with investigators examining its accounting for losses from defaulted bonds issued by a unit of the Pittsburgh-based Allegheny Health, Education and Research Foundation. In 1998, MBIA used $170 million of reinsurance contracts to offset losses from the $265 million AHERF deal. The company said in March 2005 that $70 million of those reinsurance contracts did not remove its risk, and it restated seven years of earnings as a result.
MBIA said that the remaining $100 million of the contracts did not remove risk, spurring the reinsurer to again restate the seven years of earnings. For now, the company will delay filing its quarterly financial statements with regulators and file its amended 2004 annual financial statement as soon as possible.
MBIA received a Wells Notice in August from the Securities and Exchange Commission, and is also being investigated by the New York Attorney General's Office. Other issues under investigation include MBIA's relationship with a reinsurer it helped establish, Channel Reinsurance Ltd., as well as its accounting for advisory fees, the way it establishes reserves, and purchases of credit-default protection on itself, the company said in March.
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