Confidence Game - Christine Richard [95]
“How is MBIA preparing for the coming credit storm?” Ackman asked the audience. It took a $500 million dividend out of its insurance unit in December, got permission to take another $500 million dividend out in April, announced a $1 billion stock buyback, and had already spent at least $300 million of the money raised on buybacks.
The next day, MBIA and Ambac shares fell. It was the beginning of a long slide. “Wrapper Stocks Down. Why? Pershing Square Is Back,” wrote Jordan Cahn, a credit-default-swap trader at Morgan Stanley in an e-mail message to clients.
On Thursday, May 31, Heather Hunt e-mailed Ackman with her latest report on the bond insurers, which said worries that the bond insurers would be hit by subprime losses were overstated. “Please don’t take offense,” Hunt said. “There are a lot of long investors who are interested.”
The bond insurers might sell off “on bear case suggestions the companies are exposed to subprime woes, which we believe is out of context,” Hunt wrote. She noted that only 4.5 percent of subprime mortgages were in default at the end of 2006. “Ninety-five percent of the market is still intact.”
“No offense taken at all,” Ackman wrote back the same day. “Everyone is entitled to their opinion. My only advice is that you should understand what we are saying before you issue a report disagreeing with us.” He suggested they set up a meeting.
Ackman was not averse to giving the MBIA presentation for an audience of just one. That spring, Ackman and his wife spent a weekend at Canyon Ranch, a health spa in Lenox, Massachusetts. During an afternoon hike in the Berkshire Mountains, Ackman struck up a conversation with their guide, an older man with the pleasant, incredulous voice of Jimmy Stewart.
The man told Ackman that he had retired from corporate America to do something completely different with his life.
“Where did you work before?” Ackman asked, as they huffed along the steep trail.
“A division of a company you’ve never heard of,” the guide replied. “It’s called MBIA.”
Now, that’s a coincidence, Ackman told him, explaining that he had been trying to warn investors about MBIA for the last five years.
“Oh really,” the guide replied. He told Ackman that he still had a significant amount of his retirement funds invested in his former employer’s stock.
“You should think very carefully about continuing to own those shares,” Ackman said. For the remainder of the hike, as the three wended their way back to Canyon Ranch through pine forests filled with the springtime sound of birds, Ackman told him why.
ON JUNE 5, 2007, Ackman and Roy Katzovicz, Pershing’s lawyer, flew to Boston to meet with Congressman Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee. Ackman had opened a new front in his battle with MBIA and hoped that Frank would recommend congressional hearings on the bond insurers. Ackman and Katzovicz wanted to talk to Frank about the coming crisis for the bond insurers and about the dual-scale rating system. They rented a car in Boston and picked up Marty Peretz, who knew Frank from their student days at Harvard. They arrived in Newton early and spent some time running through the presentation at a Starbucks. Ackman and Katzovicz had prepared for the meeting with Frank to last at least 60 minutes.
As soon as the meeting got under way, the group realized that Frank wasn’t going to grant them the amount of time it usually took for Ackman to give one of his marathon presentations. Frank is known for his wit and self-deprecating nature. He also has an abrupt way of cutting to the chase. As Ackman began to distribute his PowerPoint representation, Frank slammed his hand down on the document. “No. No. I can see in my head what you tell me with your mouth,” Peretz remembers Frank saying.
Katzovicz, who often found himself hauling documents to and from presentations, got a certain satisfaction from Frank’s insistence that all this paperwork