NEW YORK (Bloomberg) — MBIA Inc. declined after JPMorgan Chase & Co. cut the largest bond insurer by total guarantees to "underweight" from "neutral", and said it expects claims to eventually overwhelm the company's capital.

MBIA fell 91 cents, or 15 percent, to $5.26 as of 1:39 p.m. in New York Stock Exchange composite trading. That's the largest percentage decline since April 20. MBIA shares surged more than 40 percent last week as the company reported a profit of $894.7 million in the second quarter.

The JPMorgan report cited "concerns over earnings quality and potential losses". The second-quarter gain was driven by an estimated $1.1 billion in pretax recoveries it expects to obtain from loan originators that sold MBIA-insured bonds backed by ineligible home-equity loans. MBIA spokesman Kevin Brown declined to comment. "Accounting for future legal recoveries appears aggressive given uncertainty of outcome," JPMorgan analysts Andrew Wessel and Daniel Kim wrote. The recovery has skewed MBIA's outlook, giving it the appearance of stabilising, the analysts said.

MBIA has reviewed files on 24,000 home-equity loans backing MBIA-insured securities that are delinquent or in default, chief executive officer Jay Brown said during the company's August 6 conference call.

About 18,000, or 75 percent, of those loans were found not meeting eligibility requirements, he said. Ineligible loans include those in which an individual's income-to-total-debt level was misstated. MBIA has filed lawsuits against Countrywide Financial Corp, which was acquired by Bank of America Corp., and Rescap Corp., seeking to get the two companies to buy back ineligible loans.

"We have no doubt the company believes its claim is valid, but to book a gain of such magnitude for a suit that will last at least three years appears aggressive," the JPMorgan analysts wrote.