Everyone expected the bond insurer MBIA to have an ugly quarter. But no one expected it to be as spectacularly bad as it actually was.

Losses ballooned to $2.4 billion as the company was forced to take a $3.6 billion unrealized loss on its insured credit derivatives. While MBIA expects many of the unrealized losses to eventually reverse before becoming actual impairments, it did say it expects to pay $827 million in claims stemming from nine troubled collateralized debt obligations. (What's a C.D.O.?)

It lost $3.01 per share during the quarter, which was more than twice what analysts expected it to lose. Its book value plunged 70 percent during the period.

As it tries to deal with the mess of its existing portfolio, new business at MBIA has quickly evaporated. The company said it did almost no new business during the first quarter until the last week in February, when Moody's and Standard & Poor's reaffirmed its AAA rating. Net premiums fell by 40 percent during the period. Fitch downgraded its rating on MBIA to AA in April.

With today's news, speculation again heats up over whether the two ratings agencies will maintain their outlook on MBIA debt. Credit-default swaps on the debt widened this morning, which reflects higher costs to insure it due to greater risk of default. 

The company raised $2.6 billion in new capital during the quarter to help shore up its balance sheet and protect its credit rating. Chief executive officer Jay Brown said it does not need to raise more.

While this all sounds like it would be music to the ears of Bill Ackman, the activist hedge fund manager who has been shorting MBIA shares for several years, it curiously had the opposite effect.

Shares of MBIA soared more than 10 percent this morning, even after the company had to issue a correction to its earnings release showing that total revenue actually fell 4 percent during the quarter. Its first release said it increased slightly.

Brown's optimistic comments in the press release must have appeased nervous investors. "MBIA continues to be a sound financial institution," he said. "We have ample liquidity, our balance sheet is built to withstand credit stress levels many multiples of what we're experiencing now, and our business model is proving that we are adequately capitalized to satisfy any potential claims on our insured portfolio."

We know Ackman won't concur. But the only thing that matters now is whether or not S&P and Moody's will.