MBI - MBIA Inc.

[Cardboard]

"I don't fully understand the legal positioning or whether if they pay MBI "too much" others will also want more."

 

I have thought a lot about that point and since we are now past the point where new claims can be made, I think that the timing to settle MBI is prime. It also removes ammunition for the $8.5 billion settlement based on Judge Bransteen coming decision. Of course, like you are saying, I don't know either legally what they are planning to do, for example if Bransteen goes against them. They may have a solid plan: appeal, file something else, I don't know. Remains a bizarre strategy considering that BAC is trying to cut cost, get simpler and has enough mortgage workouts leftover to resolve internally.

 

It just seems that they have found a bulldog in Joe Brown who won't let go. The AGO guys, Syncora and others may have been softer. The thing is that he has got a heck of a case against them with every court decision so far having gone in favor of monolines. I can understand why he would be asking for a small discount to the complete recovery.

 

Also, as I mentioned before and what is missed in this discussion regarding a coming NYDFS rehabilitation is that Brown and MBI have big friends in Fairholme, Warburg Pincus and others that we might not suspect. It seems that what we have here is a temporary liquidity issue which could be resolved with some financial engineering once again throwing a wrench in whatever grand plan BAC has prepared.

 

Cardboard

[ERICOPOLY]

well, now I'm curious as to what the rebuke was!  Is there a strong defense of the deal/dilution?

 

I'm sorry I mentioned it because I'm not going to provide any details.  It's going to remain buried.  I still respect the guy's opinion (when it's not a slight directed at me).

[Guest bottomsup]

It could just be my biased interpretation, but BACs attorneys seem concerned that they haven't tilted Bransten away enough from an unfavorable summary judgement.  On the heels of the Rakoff decision, I would be very concerned, too.

 

Countrywide attny's letter to the judge:

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=IULJzus/vIjP_PLUS_z7UjlE4cw==&system=prod

[ERICOPOLY]

"I don't fully understand the legal positioning or whether if they pay MBI "too much" others will also want more."

 

I have thought a lot about that point and since we are now past the point where new claims can be made, I think that the timing to settle MBI is prime.

 

This will probably expose me for how little I know (and it's not much!), but my concern is whether the $8.5bln settlement objectors would be strengthened if BAC started to settle with MBI for 100% on the dollar.

[ERICOPOLY]

See, if I were running BAC I could make my life easier by just quickly settling these cases for perhaps a few billion more than optimal, then go play golf.  After all, the bonuses and big pay come rolling in even if I waste a few billion too much settling up lawsuits.

 

And yet Moynihan doesn't do this.  It's no skin off his back, it would just be shareholder money.  And yet he doesn't do it. 

 

So there's that argument too -- if he doesn't care about the shareholder, he could at least care about himself and get more tee time at the Country Club.

 

[muscleman]

See, if I were running BAC I could make my life easier by just quickly settling these cases for perhaps a few billion more than optimal, then go play golf.  After all, the bonuses and big pay come rolling in even if I waste a few billion too much settling up lawsuits.

 

And yet Moynihan doesn't do this.  It's no skin off his back, it would just be shareholder money.  And yet he doesn't do it. 

 

So there's that argument too -- if he doesn't care about the shareholder, he could at least care about himself and get more tee time at the Country Club.

 

Do you think it is possible that BAC got attached by some activist investor and got Moynihan fired? I notice activists are more active these days.

[ERICOPOLY]

See, if I were running BAC I could make my life easier by just quickly settling these cases for perhaps a few billion more than optimal, then go play golf.  After all, the bonuses and big pay come rolling in even if I waste a few billion too much settling up lawsuits.

 

And yet Moynihan doesn't do this.  It's no skin off his back, it would just be shareholder money.  And yet he doesn't do it. 

 

So there's that argument too -- if he doesn't care about the shareholder, he could at least care about himself and get more tee time at the Country Club.

 

Do you think it is possible that BAC got attached by some activist investor and got Moynihan fired? I notice activists are more active these days.

 

I believe an activist wants to buy shares and then quickly sell at a profit.  Wash, rinse, repeat.  So fast turnover/outcome/resolution is optimal.

 

So he wants Moynihan to settle the legal issues as quickly as possible.  Thus, pay a bit too much and just be done with it for a quick pop.  Activist then sells on the pop and you never hear from him again.

 

No, I don't think an activist would approve of what Moynihan is currently doing by dragging out the legal process -- if you bring one in for me, maybe we'll get a settlement soon and shares will recover.

 

Now, what I really believe, is that even if this MBI issue is settled you will see hardly a whimper from the stock -- this is because the issue of the earnings per share is still not settled.  That's what I think is really holding the stock back.  However, as long as I'm waiting for those earnings to recover, I hate this legal uncertainty as much as the next person.

 

EDIT:  Again, I'm reticent to openly disapprove of Moynihan "dragging out" the legal process because once again, I don't understand the underlying legal process strategy that well.  So I'm just voicing my ignorance (but that's probably already perfectly clear).

 

[muscleman]

It could just be my biased interpretation, but BACs attorneys seem concerned that they haven't tilted Bransten away enough from an unfavorable summary judgement.  On the heels of the Rakoff decision, I would be very concerned, too.

 

Countrywide attny's letter to the judge:

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=IULJzus/vIjP_PLUS_z7UjlE4cw==&system=prod

 

Is this likely to delay the SJ ruling?

[valuecfa]

It could just be my biased interpretation, but BACs attorneys seem concerned that they haven't tilted Bransten away enough from an unfavorable summary judgement.  On the heels of the Rakoff decision, I would be very concerned, too.

 

Countrywide attny's letter to the judge:

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=IULJzus/vIjP_PLUS_z7UjlE4cw==&system=prod

 

Is this likely to delay the SJ ruling?

 

That appears to be the tactic they are trying to accomplish

[Rabbitisrich]

 

I am not disagreeing with you or trying to tit for tat arguing -- I fully respect your opinion and also wish Moynihan would just do it because I can't believe we're still needing to discuss this at this point given they can fully afford to get it behind them.  But I just am less vocal about it because I don't fully understand the legal positioning or whether if they pay MBI "too much" others will also want more.  But for an extra billion over whatever they think they can settle for -- I guess it would be a billion well spent, and better spent perhaps than the billions they handed over to Buffett. 

 

It seems as if BAC management has been indulging in an evolving legal thesis. The 2011 AR conflated the "material and adverse" language with a burden of proof on MBI to demonstrate proximate causation. Then subsequent 10-Qs warned of higher reserves if their causation thesis imploded. But the language didn't change after damaging causation rulings in Syncora vs. EMC/Countrywide! Now BAC's argument has shifted to the calculation of damages, or a de facto proximate causation burden of proof. Is this part of the plan or improv?

[Cardboard]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

 

Cardboard

[muscleman]

It could just be my biased interpretation, but BACs attorneys seem concerned that they haven't tilted Bransten away enough from an unfavorable summary judgement.  On the heels of the Rakoff decision, I would be very concerned, too.

 

Countrywide attny's letter to the judge:

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=IULJzus/vIjP_PLUS_z7UjlE4cw==&system=prod

 

Is this likely to delay the SJ ruling?

 

That appears to be the tactic they are trying to accomplish

 

This is something I don't get. They are trying to delay the SJ for successor liability, right? From this letter, it looks like they are trying to have a debate on the loss causation SJ that was issued in early 2012. But since that one has been ruled by the appeal court, so what needs to be debated in the lower court?

 

Have you seen any article that analyzes this letter? It doesn't seem to make sense to me. At the end of the letter, it asked for denial of the pending SJ. The pending SJ is whether BAC has successor liability to Countrywide, which has nothing to do with which route MBIA or any other company can recover the losses.

 

In addition, could anyone please help me understand this self-contradictory language?

"The Decision left in place this Court's causation ruling in its entirety: namely,

that in order to establish Countrywide's liability on its fraud and breach-of-contract claims,

MBIA need not establish a direct causal link between Countrywide's misrepresentations or

breaches and MBIA's claims payments; however, ifPlaintiffprevails on those claims,

Plaintiff must still prove that any damages that it wishes to recover were the direct result of

the alleged misrepresentations and breaches."

 

[MYDemaray]

It could just be my biased interpretation, but BACs attorneys seem concerned that they haven't tilted Bransten away enough from an unfavorable summary judgement.  On the heels of the Rakoff decision, I would be very concerned, too.

 

Countrywide attny's letter to the judge:

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=IULJzus/vIjP_PLUS_z7UjlE4cw==&system=prod

 

Is this likely to delay the SJ ruling?

 

That appears to be the tactic they are trying to accomplish

 

This is something I don't get. They are trying to delay the SJ for successor liability, right? From this letter, it looks like they are trying to have a debate on the loss causation SJ that was issued in early 2012. But since that one has been ruled by the appeal court, so what needs to be debated in the lower court?

 

Have you seen any article that analyzes this letter? It doesn't seem to make sense to me. At the end of the letter, it asked for denial of the pending SJ. The pending SJ is whether BAC has successor liability to Countrywide, which has nothing to do with which route MBIA or any other company can recover the losses.

 

In addition, could anyone please help me understand this self-contradictory language?

"The Decision left in place this Court's causation ruling in its entirety: namely,

that in order to establish Countrywide's liability on its fraud and breach-of-contract claims,

MBIA need not establish a direct causal link between Countrywide's misrepresentations or

breaches and MBIA's claims payments; however, ifPlaintiffprevails on those claims,

Plaintiff must still prove that any damages that it wishes to recover were the direct result of

the alleged misrepresentations and breaches."

 

Sounds to me that they are saying, MBIA has to prove, in fact, that R&W's were violated, but NOT that they resulted in actual losses.  Seems obvious, but stated differently...BAC: "okay, fine, MBIA doesn't have to show that losses were the direct result of R&W violations....but they do need to demonstrate that R&W's were actually violated."  (seems like a moot/obvious point, given the sampling results)

[muscleman]

It could just be my biased interpretation, but BACs attorneys seem concerned that they haven't tilted Bransten away enough from an unfavorable summary judgement.  On the heels of the Rakoff decision, I would be very concerned, too.

 

Countrywide attny's letter to the judge:

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=IULJzus/vIjP_PLUS_z7UjlE4cw==&system=prod

 

Is this likely to delay the SJ ruling?

 

That appears to be the tactic they are trying to accomplish

 

This is something I don't get. They are trying to delay the SJ for successor liability, right? From this letter, it looks like they are trying to have a debate on the loss causation SJ that was issued in early 2012. But since that one has been ruled by the appeal court, so what needs to be debated in the lower court?

 

Have you seen any article that analyzes this letter? It doesn't seem to make sense to me. At the end of the letter, it asked for denial of the pending SJ. The pending SJ is whether BAC has successor liability to Countrywide, which has nothing to do with which route MBIA or any other company can recover the losses.

 

In addition, could anyone please help me understand this self-contradictory language?

"The Decision left in place this Court's causation ruling in its entirety: namely,

that in order to establish Countrywide's liability on its fraud and breach-of-contract claims,

MBIA need not establish a direct causal link between Countrywide's misrepresentations or

breaches and MBIA's claims payments; however, ifPlaintiffprevails on those claims,

Plaintiff must still prove that any damages that it wishes to recover were the direct result of

the alleged misrepresentations and breaches."

 

Sounds to me that they are saying, MBIA has to prove, in fact, that R&W's were violated, but NOT that they resulted in actual losses.  Seems obvious, but stated differently...BAC: "okay, fine, MBIA doesn't have to show that losses were the direct result of R&W violations....but they do need to demonstrate that R&W's were actually violated."  (seems like a moot/obvious point, given the sampling results)

 

OK. So why do they think the judge should deny the pending SJ on successor liability based on the appeal courts' decision on loss causation? These two have no relations to me.

[MYDemaray]

yeah...no idea on that one

[Guest bottomsup]

There seems to be a consensus agreement on muddled thinking in their latest submission:

 

http://www.btigresearch.com/2013/04/05/mbia-thoughts-on-bofa-counsels-letter-to-judge-bransten-pending-successor-liability-ruling-article-77/

 

yeah...no idea on that one

[rkbabang]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

Cardboard

 

Maybe this is intentional. He wants to buy back $5B worth of BAC shares as cheaply as possible, before settling with MBI.

[muscleman]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

Cardboard

 

Maybe this is intentional. He wants to buy back $5B worth of BAC shares as cheaply as possible, before settling with MBI.

 

That is quite risky. Buying back shares is intended to increase shareholder value, while running more legal risks is to decrease shareholder value. How could the move be such a calculated one that he is sure the eventual result is an increase in shareholder value?

 

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

[MYDemaray]

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

 

People seem utterly confused on the topic of Article 77.  I don't think there is a possibility of a $40bn ruling...that's not what Article 77 is about.  It's about approving (or not) a settlement.  It's not a ruling on a judgment amount.  The judge can side with the opponents and say that the settlement is unreasonable...you need to work out another one or sue each other.  Or, the judge can approve it.

 

In addition, despite my virtual begging...neither Palmer nor Herceza have adequately mapped a path to a $100bn liability to BAC.  They simply throw out large numbers and assume away the specifics.  Show me...somebody...(please!) how the $100bn liability materializes. "Article 77 fails > Judge deems amount too low > therefore, BAC on the hook for much greater amount" simply doesn't cut it.

 

There are far greater complications in the logic chain.  For instance, the Investor Group...the proponents of the Gibbs & Bruns settlement...are the only investors (with the exception of 2 trusts) which even have standing under the pooling & service agreements.  So, the judge would have to say...hmmm...."the only investors with standing want this settlement, but a random assortment of investors who have no ability to direct the Trustee under the PSA's don't like it, so...I'm going to rule against the only near term recovery option on the table".  If Article 77 fails, the ultimate fate of the settlement will rest with the Investor Group -- the group which is arguing FOR the settlement.  My guess is, they will be willing to settle  for FAR LESS than $100bn, as they've already demonstrated with their $8.5bn figure.

[muscleman]

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

 

People seem utterly confused on the topic of Article 77.  I don't think there is a possibility of a $40bn ruling...that's not what Article 77 is about.  It's about approving (or not) a settlement.  It's not a ruling on a judgment amount.  The judge can side with the opponents and say that the settlement is unreasonable...you need to work out another one or sue each other.  Or, the judge can approve it.

 

In addition, despite my virtual begging...neither Palmer nor Herceza have adequately mapped a path to a $100bn liability to BAC.  They simply throw out large numbers and assume away the specifics.  Show me...somebody...(please!) how the $100bn liability materializes. "Article 77 fails > Judge deems amount too low > therefore, BAC on the hook for much greater amount" simply doesn't cut it.

 

There are far greater complications in the logic chain.  For instance, the Investor Group...the proponents of the Gibbs & Bruns settlement...are the only investors (with the exception of 2 trusts) which even have standing under the pooling & service agreements.  So, the judge would have to say...hmmm...."the only investors with standing want this settlement, but a random assortment of investors who have no ability to direct the Trustee under the PSA's don't like it, so...I'm going to rule against the only near term recovery option on the table".  If Article 77 fails, the ultimate fate of the settlement will rest with the Investor Group -- the group which is arguing FOR the settlement.  My guess is, they will be willing to settle  for FAR LESS than $100bn, as they've already demonstrated with their $8.5bn figure.

 

I see. If Article 77 is not that bad for BAC, then I don't see the path for settlement for MBIA. BAC will simply drag the case by as long as possible, and won't even paid after the ruling. I think they will appeal.

[MYDemaray]

I see. If Article 77 is not that bad for BAC, then I don't see the path for settlement for MBIA. BAC will simply drag the case by as long as possible, and won't even paid after the ruling. I think they will appeal.

 

...that seems to be what they are doing.  Also, with respect to the MBIA bonds that BAC purchased...I am wondering if BAC did that, not only to attempt to block MBIA, but also to have some control if/when bankruptcy occurs because they would likely have standing on a creditors committee.  An additional wild theory that I have entertained is...could BAC be pursuing a "loan to own" strategy, where they end up controlling the re-organized MBIA structured finance unit, thereby dropping/settling the matter themselves.  That's far-fetched, I realize, but things that arise when you're just brainstorming with yourself...

[ERICOPOLY]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

Cardboard

 

Maybe this is intentional. He wants to buy back $5B worth of BAC shares as cheaply as possible, before settling with MBI.

 

That is quite risky. Buying back shares is intended to increase shareholder value, while running more legal risks is to decrease shareholder value. How could the move be such a calculated one that he is sure the eventual result is an increase in shareholder value?

 

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

 

You didn't get that $40 bn number from me I hope.

 

I threw that number out there not to imply that an article 77 ruling itself would force them to pay up $40bn.  Rather, if they lose successor liability as well as the article 77, then BAC management might have to increase the legal reserve for settling the present $8.5bn number at a higher level.  So I pulled out a totally arbitrary massive number of $40bn -- and the amount was to quiet down your alarmist claim that they would be worthless, so I showed how even an incredibly large reserve boost would still leave them nowhere near a crisis.

[valuecfa]

without comment: http://www.streetinsider.com/Analyst+Comments/Court+or+No+Court%2C+MBIA+%28MBI%29+Will+Prevail+in+Countrywide+RMBS+Case+-+Analyst/8235970.html

[Cardboard]

"If Article 77 fails, the ultimate fate of the settlement will rest with the Investor Group -- the group which is arguing FOR the settlement.  My guess is, they will be willing to settle  for FAR LESS than $100bn, as they've already demonstrated with their $8.5bn figure."

 

I am not sure about all the details or the process of it, but these people who agreed to the $8.5 billion settlement, do they have any chance to change their mind? I mean, why go for pennies on the dollar when you could now ask $0.20, $0.30 or more now that BAC is doing well with a strong balance sheet and that you have other cases in court to back a bigger claim? Are they trapped for now in the Article 77 proceeding because it was entered into a long time ago and are now praying for a negative verdict to be free to ask for more?

 

After all, they agreed to this amount in pretty much a different era if you are to compare with today when they thought they were lucky to even get that amount. Monolines have won pretty much all their cases with many regarding fraud and many have settled. Lots of precedents that did not exist before.

 

Cardboard

[muscleman]

Honestly, I would rather have Moynihan on the golf course than continuing this costly and uncertain non sense. What I would really like him to do is to focus on being a banker and not a lawyer as per his background, which may be influencing his decisions in these cases. In any case, he has a lot of work to do before hitting the golf course even without MBI.

 

I agree with you Ericopoly that what is holding back BAC stock is mainly earnings. Although, if you have the choice between two identical companies with same earnings and margins while one is engaged in lawsuits for which you think the cost could go from a few billions to 10's of billions and the other is not, on which one would you assign a discount?

Cardboard

 

Maybe this is intentional. He wants to buy back $5B worth of BAC shares as cheaply as possible, before settling with MBI.

 

That is quite risky. Buying back shares is intended to increase shareholder value, while running more legal risks is to decrease shareholder value. How could the move be such a calculated one that he is sure the eventual result is an increase in shareholder value?

 

If BAC is ruled to pay $40 bn in article 77, then the shareholder value will take a big hit.

 

You didn't get that $40 bn number from me I hope.

 

I threw that number out there not to imply that an article 77 ruling itself would force them to pay up $40bn.  Rather, if they lose successor liability as well as the article 77, then BAC management might have to increase the legal reserve for settling the present $8.5bn number at a higher level.  So I pulled out a totally arbitrary massive number of $40bn -- and the amount was to quiet down your alarmist claim that they would be worthless, so I showed how even an incredibly large reserve boost would still leave them nowhere near a crisis.

 

I understand what you mean. What I am saying is that no body knows the downside for article 77. Even if it won't kill BAC, it can theoretically give BAC a hard punch. Why should BAC's management take that risk?

 

Anyway, I now believe the settlement is pretty remote for MBIA.