MBI - MBIA Inc.

[prunes]

Any updated thoughts on how the trial is going?

[goldfinger]

NY says the judge should maintain the transformation:

http://newsandinsight.thomsonreuters.com/Legal/News/2012/05_-_May/Judge_should_rule_MBIA_split_was_rational,_NY_says/

 

Banks lawyers seem to have given a better analysis overall of what the insurance department of NY should have used to approve the transformation, however the transformation doesn't seem to have been a capricious or arbitrary decision from Dinallo. There is not really any new elements on the banks side.

[valuecfa]

Any updated thoughts on how the trial is going?

 

On a smartphone so have to keep it short fo now.

 

The NYSID made a really great run through of why they approved the transformation and what their process was..it really cleared up some of the banks main arguements. Really interesting transcript of events at the time...including the involvement of the Treasury secretary, etc.

 

I think the banks'  best shot at a victory is avoiding the arbitrary and capricious standard by arguing the NYSID was working with the alleged dated/incomplete material. I don't think they (the banks) will overturn based on arb/cap standard. Still see MBIA being victorious at this point...will have to wait to hear rebuttals and more commentary from judge

[mpauls]

Very good update by BTIG's Mark Palmer (29 May 2012):

 

http://investinginknowledge.com/info/2012/05/btig-summary-mbia-where-things-stand-on-the-article-78-proceeding-may-2012/

 

"As the Article 78 proceeding challenging New York’s approval of buy-rated MBIA’s 2009 split enters its third week, three questions arise: what remains of the proceeding, when is it likely to conclude, and who is likely to win?..."

[mpauls]

Btw,  You are a damn fool if you're not buying at this price.  (1:02pm ~$8.80/sh, $1.699bn)

[valuecfa]

 

 

As the Article 78 proceeding challenging New York’s approval of buy-rated MBIA’s 2009 split enters its third week, three questions arise: what remains of the proceeding, when is it likely to conclude, and who is likely to win?

 

1) a few days of rebuttals from banks,  a few days from MBIA/NYSID , testimony from dinallo/buchmiller, perhaps testimony from other expert witness if judge deems necessary, conclusions.

 

2) likely in another ~2 weeks

 

3) MBIA is likely to prevail in my opinion

[Cardboard]

While I own a fair size position, I am not so sure it is a slam dunk as you are indicating MPauls. BAC has not settled yet and as pointed out it could be to spread payments from legacy issues or it could be also based on a belief that they will be able to separate from Countrywide. The ResCap bankruptcy and its separation from Ally could provide a precedent to BAC in court.

 

I still think it would be prudent for BAC to settle, but it has been so long now that I am afraid that there is more than what meets the eye. I would not be surprised to see BAC appeal an article 78 defeat just to drag things and trying to reach a lower settlement with MBI which will need cash soon enough.

 

Cardboard

 

[valuecfa]

While I own a fair size position, I am not so sure it is a slam dunk as you are indicating MPauls. BAC has not settled yet and as pointed out it could be to spread payments from legacy issues or it could be also based on a belief that they will be able to separate from Countrywide. The ResCap bankruptcy and its separation from Ally could provide a precedent to BAC in court.

 

I still think it would be prudent for BAC to settle, but it has been so long now that I am afraid that there is more than what meets the eye. I would not be surprised to see BAC appeal an article 78 defeat just to drag things and trying to reach a lower settlement with MBI which will need cash soon enough.

 

Cardboard

 

Well the "non-trial" has come to an end. The speculation is that we will have the judge's opinion in the July/August time frame. Alison Frankel (who did a great job reporting on the case) sums it up well: http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=49488&terms=@ReutersTopicCodes+CONTAINS+%27ANV%27

[prunes]

http://www.subprimeshakeout.com/2012/06/the-top-5-rmbs-cases-to-watch-no-1-mbia-v-countrywide.html

[Rabbitisrich]

http://www.reuters.com/article/2012/06/19/us-jpmorgan-syncora-lawsuit-idUSBRE85I1PV20120619

 

U.S. District Judge Paul Crotty said on Tuesday that Syncora Guarantee Inc, which claimed losses from insuring securities created by JPMorgan's EMC Mortgage Corp unit, need not prove that alleged warranty breaches caused the underlying loans to default in order to force EMC to buy back the underlying loans.Crotty also said Syncora can establish a material breach of contract by showing that breaches of representations and warranties by EMC caused a material increase in risk.

 

The MBIA/BAC appeal on loss causation is supposed to return to trial in October.

[PlanMaestro]

 

MBIA Drops As Regulator Balks On Note Payment

http://www.bloomberg.com/news/2012-07-10/mbia-says-n-y-regulator-hasn-t-approved-payment-on-surplus-note.html

 

The insurer dropped as much as 12 percent to $9.35 after it said in a regulatory filing that the New York State Department of Financial Services hasn’t approved a July 16 payment by the MBIA Insurance Corp. unit on its 14 percent surplus notes maturing in 2033. The shares pared the loss, trading at $9.66 at 4:15 p.m. in New York, as MKM Partners LLC analyst Harry Fong said the delay doesn’t harm the company or policyholders.

 

The announcement may have fueled concern that the insurance unit’s financial standing is worse than investors had anticipated, adding support to banks that are challenging a 2009 restructuring of Armonk, New York-based MBIA, Fong said in a note recommending that clients buy amid the decline. No cash is due from the unit if the regulator doesn’t approve the step, meaning a missed payment wouldn’t be a default, MBIA said.

 

“MBIA filed to have this payment approved more than a month ago and has the liquidity to make the payment,” Fong said. “While we do not know what the NYSDFS will ultimately decide, we believe that its decision will have little bearing” on the restructuring case, he wrote.

 

The guarantor sold the notes in 2008 to bolster capital amid soaring defaults on subprime home loans, delaying a reduction of its then-top credit ratings. Surplus notes are bonds issued by insurance companies that state insurance regulators consider equity. In the event of a bankruptcy, the notes are repaid after other creditors and before stockholders.

[PlanMaestro]

Did MBIA need a little push to come back to the negotiation table?

 

What message is regulator sending MBIA? Frankel

http://www.reuters.com/article/2012/07/10/us-mbia-idUSBRE8691H820120710

 

Again, we shouldn't construe the DFS delay in approving the interest payment as a signal that Lawsky now believes MBIA is insolvent -- but we should regard it as a warning to the insurer and, perhaps, a nudge toward settling with BofA and SocGen before Kapnick rules.

 

Only a settlement, after all, will assure the state's foremost objective, which has always been to protect MBIA's muni bond policyholders. The state's secondary goal is to get MBIA back into the business of writing muni policies, which is why Lawsky has cut the insurer considerable slack to remove the overhang of structured finance liability, twice allowing MBIA Insurance to borrow huge sums from the muni bond business, MBIA National, to fund commutation deals with banks. (He's also previously hinted that MBIA executives don't have his unwavering support; as DFS counsel Holgado told Kapnick at trial, Lawsky "convinced (MBIA top brass) to forgo bonuses" this year.)

 

MBIA's entanglement with BofA is complicated, of course, by the insurer's billions of dollars of claims against Countrywide for allegedly deficient mortgages underlying securities MBIA insured. I've always considered Bank of America to be the reluctant partner in the settlement dance with MBIA, but Lawsky seems to be pushing MBIA to let the bank take the lead.

[Grenville]

Did MBIA need a little push to come back to the negotiation table?

 

What message is regulator sending MBIA? Frankel

http://www.reuters.com/article/2012/07/10/us-mbia-idUSBRE8691H820120710

 

Again, we shouldn't construe the DFS delay in approving the interest payment as a signal that Lawsky now believes MBIA is insolvent -- but we should regard it as a warning to the insurer and, perhaps, a nudge toward settling with BofA and SocGen before Kapnick rules.

 

Only a settlement, after all, will assure the state's foremost objective, which has always been to protect MBIA's muni bond policyholders. The state's secondary goal is to get MBIA back into the business of writing muni policies, which is why Lawsky has cut the insurer considerable slack to remove the overhang of structured finance liability, twice allowing MBIA Insurance to borrow huge sums from the muni bond business, MBIA National, to fund commutation deals with banks. (He's also previously hinted that MBIA executives don't have his unwavering support; as DFS counsel Holgado told Kapnick at trial, Lawsky "convinced (MBIA top brass) to forgo bonuses" this year.)

 

MBIA's entanglement with BofA is complicated, of course, by the insurer's billions of dollars of claims against Countrywide for allegedly deficient mortgages underlying securities MBIA insured. I've always considered Bank of America to be the reluctant partner in the settlement dance with MBIA, but Lawsky seems to be pushing MBIA to let the bank take the lead.

 

Thanks for posting Plan!

[fenris]

Plan do you have a position in MBI?

[PlanMaestro]

No comments.

[abcd]

If there is ever a competition for the best message ever posted on this board, the previous message qualifies.

[JRH]

http://www.zerohedge.com/news/mbia-vs-bac-saga-ending-under-24-hours

 

Premise of the article is obviously wildly speculative, but the quotes are illuminating.  Haven't read the 100+ page source doc.

 

Any thoughts on what the relative market valuations of AGO and MBIA are telling us?  I am not getting my hopes up for the sort of pop a lot of people seem to be expecting (+50%/+100%, etc...).

[valuecfa]

Zerohedge article providing a small pop this morning. Being that tomorrow is my birthday I hope they are right

[Telluride]

New to message board and MBI, but trying to figure the latter one out quickly given all the moving pieces.

 

I read the full document today and did not come away as positive for MBIA / negative for BAC as I would have thought. It felt more like a lot of cherry picking of quotes to me. My takeways were:

1) July 13 disclosures - there were a few buckets of disclosures mandated for July 13: the non-redacted reserve analyses were due as quoted, but BAC said those had already been provided; there was an increase in putback documents where CFC had not turned over some general policies and minutes of committee meetings around settlements or other items that did not pertain to MBIA loans - this will give them a place to look for more ideas, but they can't use info that does not pertain to them and must keep it confidential; and there is the priviledge log which sounds like a mess but also a lot of miscommunications with both sides not very friendly and it would be settled by a outsrourced judge who is good at these.

 

I certainly did not walk away with any sense that these disclosures would compel BAC to settle imminently or tomorrow as BTIG suggested.

 

2) timing for summary motion for summary judgement on successor liability...dates were set for expert witness depositions, responses, etc through August with summary motions due Sept 21 and arguments heard in Nov and Dec. Despite the push by the judge for document disclosures by tomorrow, BAC was on the favorable end in terms of timing as MBIA wanted things done faster here.

 

Despite the judges rhetoric about speeding this up, it seems like the decision on the summary judgement on successor liability could take up to 6 months after the arguments in Nov/Dec and that she would not set trial dates until that decision was reached, appealed, etc. So while I presume she wants this to be over as soon as possible, that is still a very long way away.

 

So my three questions if others could point me in the right direction for coming up to speed here:

1) With such a runway, why would BofA feel compelled to settle immediately particularly with the liquidty situation of MBIA making the fraudulent conveyance claim of the plenary action seem more reasonable? As an aside, I feel like the Article 78 has been in the bag for MBIA since the judge outlined the scope of the hearing (negligent and capricious). I'm sure its been addressed somewhere in great depth if someone could point me there.

 

2) As a corollary to that and the question posed by JRH...will a favorable 78 hearing lead to a big pop if it was never that likely they would lose it and the plenary action seems to be the real one focused on the heart of the issue of fraudulent conveyance.

 

3) Finally, tied to #2 and JRH's point and really one of the cruxes of whether or not I shoudl invest...I am having trouble with the AGO comp here. My understanding is that AGO has a clean enough balance sheet that they are in the market writing business today and yet they trade at 0.5x GAAP book value. Why does MBIA already trade at 1-1.1x book and why would it pop from here if the whole 78 win, BAC settlement would just put them in a position to be where AGO is today in terms of writing new business? I guess there is upside to book if they are able to get a settlement greater than the $3B already booked (less any bleed from Rescap bankruptcy) which I see. But shouldn't AGO trade at a premium as well?

[JRH]

Yes, to put it succinctly... As a part of due diligence, I always try to understand what the market prices are trying to convey, and the relative valuations of MBIA and AGO seem to be saying less about trial-related overhang for MBIA and more about the general pessimism in the muni bond insurance industry.  Given the handful of recent and pending defaults (Stockton, etc...) I would sure love to read Meredith Whitney's full report on state/municipal finances.  It is certainly possible that the only thing she got wrong was the timing - or, really, the number of options these municipalities have found to kick the can another six/twelve/eighteen months.

 

In terms of relative valuation, it is also possible that they need to be normalized to the quality of contracts held by either of the two, but I don't know how to judge that going forward.

[mpauls]

MBIA's Muni book is, by far, less risky than the other monolines. 

[valuecfa]

MBIA's Muni book is, by far, less risky than the other monolines.

 

Very true. Not all companies' book are the same.

[Telluride]

Anyone have an extrapolation from the Syncora BofA settlement to MBIA/Bofa?

[jegenolf]

Anyone have an extrapolation from the Syncora BofA settlement to MBIA/Bofa?

 

It looks like Syncora settled for 90 cents on the dollar of claimed losses as of 2010. For MBIA that baseline is something around $4.8B. 90% of 4.8B would be $4.3B, or about a billion more than they have booked as expected recoveries.

[racemize]

In the BofA call, they said 60 cents on the dollar and even less of the original claims (maybe 20%)--it was a little hard to follow though.