MBI - MBIA Inc.

[JRH]

Chou Associates bought into MBIA in Q4:

 

http://www.sec.gov/Archives/edgar/data/1389403/000114420413008799/v335242_13fhr.txt

 

Tilson, too, but I am not a fan of his, so, no link. ;)

[vinod1]

 

That is the best case scenario. For the worst case scenario, BAC needs to pay 100% of the actuall losses+interest+legal fees, which accounts to over $200 bn in the Article 77 case.

Again, I am not very familiar with Article 77 so I can't say if that $200 bn is realistic at all. But even if there is only 5% probability for this outcome, this would still be a huge threat on BAC's existence.

 

Total outstanding principal balance as of Q3, 2012 for non-GSE's for which there is no settlement yet.

 

Whole loans sold $13 billion

Private label (CFC) $136 billion

Private label (non CFC) $57 billion

Private label (3rd party issued) $57 billion

 

Total outstanding principal balance is $263 billion. Assume 40% of loans default and further assume there would be loss of 40% on the defaulted loans. This gives a total loss of about $42 billion. BAC easily should have about $12 billion set aside for this in the reserves (out of the $19 billion). So using pretty draconion assumptions, the max loss is about $30 billion. I do not think there is any real risk of this scenario (40% default and 40% loss) but even if it does come to pass, it is not going to bankrupt BAC.

 

Vinod

 

[MYDemaray]

That is the best case scenario. For the worst case scenario, BAC needs to pay 100% of the actuall losses+interest+legal fees, which accounts to over $200 bn in the Article 77 case.

Again, I am not very familiar with Article 77 so I can't say if that $200 bn is realistic at all. But even if there is only 5% probability for this outcome, this would still be a huge threat on BAC's existence.

 

I think you're confusing two types of cases.  The losses + interest + legal fees pertains to the monoline insurance disputes -- AGO v. Flagstar, and in our discussion MBIA v. Countrywide.  In this case, those losses are ~$4.5bn.

 

The $200bn loss figure pertains to private security holders.  Private security holders face much, much higher hurdles since they are governed by the pooling and servicing agreements which require 25% ownership of the underlying pool to direct the trustee to action, and they are also subject to statutes of repose.  Twenty-two of the world's largest investors - PIMCO, Blackrock, Goldman, etc. -- could only come up with that 25% threshold for $26bn of the $200+bn in securities.  As Gibbs & Bruns points out, the remaining 86% of holders would end up with nothing were it not for the $8.5bn because they have no standing.  Judge Mariana Pfaelzer, who is adjudicating the Federal securities cases against Countrywide has tossed suits that lack the 25% standing.  In addition, the Federal statute of repose is 5 years and in NY it is 6 years.  If a security holder hasn't filed suit yet, the clock has basically run.  So -- I am still at a loss as to how this $200bn liability manifests itself.  Yet, it is this $200bn in liability which everyone is saying will pressure BAC into a settlement sooner rather than later.  I don't see it.

 

 

Here is some language from the Institutional Investor statement in support of the settlement in question:

The circumstances in which Certificateholders can pursue these claims are also very narrow. The PSAs require Certificateholders to aggregate 25% of the Voting Rights, provide a financial indemnity to the Trustee, and give two consecutive sixty day notice periods.

 

There are 530 Trusts involved in the settlement. The Institutional Investors hold 25% of the Voting Rights in 189 of these Trusts. If the settlement is not approved, they can and will litigate claims for those Trusts, but they do not believe litigation would achieve a better—ormore certain—result than the settlement the Trustee has in hand. Though they are prepared to litigate, they prefer the settlement. There are 341 other Trusts involved in the settlement. In all but two of those 341 Trusts, no group alleges that they hold 25% of the Voting Rights. In fact, of the over $40 billion in securities held by the Institutional Investors or by funds and clients they advise, almost $14 billion are in Trusts where the Institutional Investors lack the required 25% threshold. If the settlement is disapproved, these Trusts will receive no remedy at all. See Part II(F), infra. Rejection of the settlement would be devastating for these Trusts and their investors. The Court should press the objectors carefully to determine whether they have any plan, at all, to obtain relief for these Trusts if the settlement is disapproved.

 

[Kraven]

Second, does anyone know if the pooling and servicing agreements require all investors be treated equally? I just pulled up a PSA to have a look, but suppose for a second that the Gibbs and Bruns settlement fails in the Article 77 hearing.  Does anything preclude BAC from renegotiating the settlement only with the Investor Group that had more than 25% of the trusts? (Only 14% of total face value) In such a scenario, BAC could settle for less than $8.5bn, and the remaining 86% of holders would be left with nothing, due to less than 25% ownership to direct the trustee and lapse of statute of repose.  This would be a better outcome for BAC, and their MBIA exposure would be unchanged.  MBIA would still get paid, but it makes the matter a lot less urgent for BAC, than Herceza and Palmer are suggesting.  Anyone know if this is possible?

 

There is nothing inherent in a PSA that requires that between different deals they be treated the same, but payments in a given transaction are governed by the priority of payments (waterfall).  All payments that come into the trust are paid out pursuant to the waterfall.  All holders of a given class are treated equally. 

[MYDemaray]

There is nothing inherent in a PSA that requires that between different deals they be treated the same, but payments in a given transaction are governed by the priority of payments (waterfall).  All payments that come into the trust are paid out pursuant to the waterfall.  All holders of a given class are treated equally.

 

Thanks Kraven (I found Section 10.08 of the PSAs which seems to address this).  I think this implies that BAC could essentially limit its exposure to the trusts where the Institutional Investor group has met the 25% threshold which is 189 of 530 trusts.  Not sure of the dollar amount.

[Kraven]

There is nothing inherent in a PSA that requires that between different deals they be treated the same, but payments in a given transaction are governed by the priority of payments (waterfall).  All payments that come into the trust are paid out pursuant to the waterfall.  All holders of a given class are treated equally.

 

Thanks Kraven (I found Section 10.08 of the PSAs which seems to address this).  I think this implies that BAC could essentially limit its exposure to the trusts where the Institutional Investor group has met the 25% threshold which is 189 of 530 trusts.  Not sure of the dollar amount.

 

Sure.  Look at Article 4 for waterfall provisions.  If memory serves 10.08 discusses limitations of rights of certificateholders and does say that no holder can get preference over another except as the agreement provides (such as by the priority of payments).  I wasn't sure I understood though your point about how this provision limits exposure to the trusts where the groups have met the 25% threshold.

[MYDemaray]

Sorry -- I wasn't clear on my thinking here.  Before I was wondering if BAC could put the matter behind them by settling with just the Investor Group, and leaving the other certificate holders in the lurch.  Section 10.08 prohibits this approach.  So, while they can't limit their liability to just the dollar amounts held by the Investor Group, they could theoretically limit their liability to only those trusts in which the Investor Group meets the 25% threshold (plus the two other trusts mentioned where investors have the 25%) since the remaining trusts can't really bring suit -- am I thinking about this correctly?

[Kraven]

Sorry -- I wasn't clear on my thinking here.  Before I was wondering if BAC could put the matter behind them by settling with just the Investor Group, and leaving the other certificate holders in the lurch.  Section 10.08 prohibits this approach.  So, while they can't limit their liability to just the dollar amounts held by the Investor Group, they could theoretically limit their liability to only those trusts in which the Investor Group meets the 25% threshold (plus the two other trusts mentioned where investors have the 25%) since the remaining trusts can't really bring suit -- am I thinking about this correctly?

 

Yes. Assuming a way can't be found around the 25% limitation and/ or the trustees of those other trusts don't (or didnt) act on their own initiative then it would be limited.

[valuecfa]

The attempt at twisting of the facts is almost comical...

 

a few letters to the judge filed today by both parties.

[muscleman]

The attempt at twisting of the facts is almost comical...

 

a few letters to the judge filed today by both parties.

 

If the judge doesn't rule on the summary judgement, then when would you expect us to see a hearing for it?

[valuecfa]

The attempt at twisting of the facts is almost comical...

 

a few letters to the judge filed today by both parties.

 

If the judge doesn't rule on the summary judgement, then when would you expect us to see a hearing for it?

 

I don't expect the judge to rule on summary judgement, but its possible.

 

I doubt we will see this case go all the way to trial (which is not far off), but i didn't think it would get this far either.

 

The one benefit of the long delay in the trial and routine setbacks has been that it has given me (and others) the opportunity to dramatically increase my position in the company. While i am sure many have a lower cost basis, mine is now 8.14...significantly lower than it was a year ago.

 

 

[muscleman]

The attempt at twisting of the facts is almost comical...

 

a few letters to the judge filed today by both parties.

 

If the judge doesn't rule on the summary judgement, then when would you expect us to see a hearing for it?

 

I don't expect the judge to rule on summary judgement, but its possible.

 

I doubt we will see this case go all the way to trial (which is not far off), but i didn't think it would get this far either.

 

The one benefit of the long delay in the trial and routine setbacks has been that it has given me (and others) the opportunity to dramatically increase my position in the company. While i am sure many have a lower cost basis, mine is now 8.14...significantly lower than it was a year ago.

 

Nice... Mine is $10.11. I put more money into AGO than MBI. I reached my 10% limit on MBI so I decided not to put in more.

[fareastwarriors]

http://www.forbes.com/sites/danielfisher/2012/06/07/bank-of-america-mbia-in-3-billion-game-of-chicken/

 

Bank of America, MBIA In $3 Billion Game Of Chicken

[PlanMaestro]

http://www.businesswire.com/news/home/20130227006369/en/MBIA-Reports-Fourth-Quarter-Full-Year-2012

 

The Company’s expected liquidity and capital forecast for MBIA Corp. for 2013 reflects adequate resources to pay expected claims. However, there is a significant risk to this forecast as MBIA Corp.’s forecast assumes a comprehensive settlement with Bank of America and its affiliates that includes a commutation of the insured CMBS exposure held by Bank of America/Merrill Lynch and the collection of a substantial portion of MBIA Corp.’s put-back claims against Bank of America/Countrywide.

 

The Company believes that a timely settlement will occur because it believes a comprehensive settlement is in the best interests of both MBIA Corp. and Bank of America. A settlement would substantially alleviate the liquidity stress caused by Bank of America/Countrywide’s failure to repurchase the billions of dollars of ineligible loans in MBIA-insured securitizations. While the

 

Company believes it is more likely than not that a timely settlement will be reached, there can be no assurance such a settlement will be reached on mutually acceptable terms and in a timely manner. As previously disclosed, if MBIA Corp. is not able to reach a comprehensive settlement with Bank of America within a reasonable period of time and Bank of America or its affiliates presents substantial claims on its policies covering CMBS pools, MBIA Corp. may have insufficient resources to cover such claims.

 

Consequently, the Company has concluded that there is a significant risk of MBIA Corp. being placed into a rehabilitation or liquidation proceeding by the NYSDFS and, therefore, substantial doubt exists about MBIA Corp.’s ability to continue as a going concern. However, even in such event, the Company believes that MBIA Inc. and National, as well as MBIA Inc.’s non-insurance subsidiaries, remain viable with sound future business plans and that similar going concern considerations do not apply to these entities.

 

 

[ERICOPOLY]

http://www.businesswire.com/news/home/20130227006369/en/MBIA-Reports-Fourth-Quarter-Full-Year-2012

 

The Company’s expected liquidity and capital forecast for MBIA Corp. for 2013 reflects adequate resources to pay expected claims. However, there is a significant risk to this forecast as MBIA Corp.’s forecast assumes a comprehensive settlement with Bank of America and its affiliates that includes a commutation of the insured CMBS exposure held by Bank of America/Merrill Lynch and the collection of a substantial portion of MBIA Corp.’s put-back claims against Bank of America/Countrywide.

 

The Company believes that a timely settlement will occur because it believes a comprehensive settlement is in the best interests of both MBIA Corp. and Bank of America. A settlement would substantially alleviate the liquidity stress caused by Bank of America/Countrywide’s failure to repurchase the billions of dollars of ineligible loans in MBIA-insured securitizations. While the

 

Company believes it is more likely than not that a timely settlement will be reached, there can be no assurance such a settlement will be reached on mutually acceptable terms and in a timely manner. As previously disclosed, if MBIA Corp. is not able to reach a comprehensive settlement with Bank of America within a reasonable period of time and Bank of America or its affiliates presents substantial claims on its policies covering CMBS pools, MBIA Corp. may have insufficient resources to cover such claims.

 

Consequently, the Company has concluded that there is a significant risk of MBIA Corp. being placed into a rehabilitation or liquidation proceeding by the NYSDFS and, therefore, substantial doubt exists about MBIA Corp.’s ability to continue as a going concern. However, even in such event, the Company believes that MBIA Inc. and National, as well as MBIA Inc.’s non-insurance subsidiaries, remain viable with sound future business plans and that similar going concern considerations do not apply to these entities.

 

Well, considering they recently said something to the effect of "We have no liquidity issues at MBIA Corp... but... if we did it would be BofA's fault".

 

Now that's funny right there, I don't care who you are.

- Larry the Cable Guy

 

 

 

[valuecfa]

Mixed bag.

 

Results for the quarter were good from a nominal sense, yet a mixed bag overall. MBIA seems to expect an impending settlement with BAC (which i think is likely before the SL ruling), using the strongest language yet that a settlement is not only likely, but timely. Yet they note the risks to Ins Corp and its creditors/stakeholders if a settlement doesn't happen....and the minimal effects it will have on the parent company & National. One thing i picked up on recently is that liquidity at Ins Corp. is now preventing the possibility of further commutations within that unit (using prior methods) since Jan 1 of this year, including ones that were agreed to by involved parties, and will probably stay that way until something changes.

 

I continue to think it is a head i win, tails i win more scenario. Volatility should resume.

 

 

[valuecfa]

Looks like BTIG just put out a new report i haven't yet read through but they added a new $22 target price (for those who follow that sort of thing)

[PlanMaestro]

10K (97 mentions of Bank of America)

 

In the fourth quarter of 2012, MBIA Insurance Corporation agreed with a credit default swap (“CDS”) counterparty on a commutation of certain potentially volatile policies insuring ABS CDO, structured CMBS pools and CRE CDO transactions. The agreement was subject to the approval of the New York State Department of Financial Services (the “NYSDFS”) of a request to draw on the National Secured Loan in order to finance the commutation, as well as the receipt by MBIA Insurance Corporation of confirmation from the NYSDFS of its non-disapproval of the commutation. MBIA Insurance Corporation requested the NYSDFS to confirm its non-disapproval of the commutation and for approval of a loan under the National Secured Loan or for approval of an alternative financing structure to finance the commutation.

 

Subsequent to December 31, 2012, those requests were denied. The Company’s ability to commute insured transactions is limited by available liquidity, including the availability of intercompany loans under the National Secured Loan and the use of other available financing structures and liquidity, all of which could be subject to regulatory approval by the NYSDFS. There can be no assurance that the Company will be able to fund further commutations by borrowing from National or otherwise.

 

(…)

 

While no claims have been made on the BOA CMBS Exposures to date, given the significant erosion of the deductible in some of the underlying insured CDS, the Company expects that Bank of America /Merrill Lynch will have the ability to make a claim in the near term. If MBIA Insurance Corporation is unable to commute the BOA CMBS Exposure, MBIA Insurance Corporation could incur substantial additional losses in its portfolio in excess of its estimates. In addition, because the reserves are based on management’s judgment and estimates, there can be no assurance that the ultimate liability will not exceed such estimates, that the BOA CMBS Exposure will be commuted, or that the timing of claims payments and the realization of recoveries will not create liquidity issues.

[BargainValueHunter]

http://www.bloomberg.com/news/2013-03-01/mbia-municipal-bond-insurer-unit-cut-three-steps-to-junk-by-s-p.html?cmpid=yhoo

 

National Public Finance Guarantee Corp. was lowered to BB from BBB with a “developing” outlook, the New York-based ratings company said yesterday in a statement. The MBIA parent company’s B- rating, four steps lower than the insurance subsidiary, was affirmed with a negative outlook.

 

The downgrade came a day after MBIA, shut out of the bond- guarantee business after backing mortgage securities that soured during the financial crisis, said there is “substantial doubt” about the ability of its MBIA Insurance Corp. unit that insured the debt to continue as a going concern.

 

While National Public Finance was created to split off its main muni-bond business from those losses, S&P said yesterday that the new unit may not be able to recover about a $1.6 billion intercompany loan to the distressed unit if regulators seize that subsidiary as loss claims erode its capital.

[BargainValueHunter]

http://www.reuters.com/article/2013/03/01/usa-mbia-moodys-idUSL1N0BT3IQ20130301

 

Shares of bond insurer MBIA Inc rose as much as 7 percent on Friday as investors bet that a new investigation into Bank of America Inc's mortgage practices would pressure the bank to settle a $5 billion lawsuit with the company.

 

Bank of America said in securities filing on Thursday that New York State Attorney General Eric Schneiderman was investigating the bank over the purchase, securitization and underwriting of home loans by Countrywide Financial, which the bank bought in 2008.

[valuecfa]

http://www.reuters.com/article/2013/03/01/usa-mbia-moodys-idUSL1N0BT3IQ20130301

 

Shares of bond insurer MBIA Inc rose as much as 7 percent on Friday as investors bet that a new investigation into Bank of America Inc's mortgage practices would pressure the bank to settle a $5 billion lawsuit with the company.

 

Bank of America said in securities filing on Thursday that New York State Attorney General Eric Schneiderman was investigating the bank over the purchase, securitization and underwriting of home loans by Countrywide Financial, which the bank bought in 2008.

 

I don't know that I buy this angle, but you may find this interesting: http://www.btigresearch.com/2012/10/05/mbia-what-is-offensive-collateral-estoppel-and-why-could-it-make-bofa-more-prone-to-agree-to-a-settlement/

 

...Why? Let’s assume that BAC goes to trial with MBIA and loses. If Schneiderman files a lawsuit against BAC as the successor liable for Countrywide’s breaches of representations and warranties in mortgages it sold – a follow-up to the JPM suit that we believe is highly likely in light of the NYAG’s stated intent to pursue other MBS issuers – he could use collateral estoppel to piggyback off of MBIA’s victory to prove most (if not all) of his case against BAC.

 

When the summary judgment motions and supporting documents are unsealed in MBIA v. Countrywide, Schneiderman could then file his own lawsuit against BAC on behalf of all investors in Countrywide MBS using the JPM successor liability action as a template. If MBIA were to win its trial, then the facts it would prove in doing so would not have to be retried by the NYAG. He could assert collateral estoppel to have the judge accept those facts as proven in arguing its case that Countrywide had engaged in fraudulent activity...

 

 

 

[MYDemaray]

http://www.reuters.com/article/2013/03/01/usa-mbia-moodys-idUSL1N0BT3IQ20130301

 

Shares of bond insurer MBIA Inc rose as much as 7 percent on Friday as investors bet that a new investigation into Bank of America Inc's mortgage practices would pressure the bank to settle a $5 billion lawsuit with the company.

 

Bank of America said in securities filing on Thursday that New York State Attorney General Eric Schneiderman was investigating the bank over the purchase, securitization and underwriting of home loans by Countrywide Financial, which the bank bought in 2008.

 

Just to be clear -- the disclosure that is cited showed up in the Merrill Lynch 10-K, not the Bank of America 10-K.  The Bank of America 10-K showed no change in language with respect to NYAG.  As such, these are Merrill issued securities which are being examined, not Countrywide.  That said, from what I understand MBIA has insured a bunch of Merrill deals (can someone verify?) so this might get them off the hook there. 

[BargainValueHunter]

MBIA news?

 

Up 18%+....halted.

[BargainValueHunter]

From Twitter:

 

christian herzeca ‏@cherzeca

 

@StevePendergast art 78 just filed on court docket. kapnick writes 58 pages. for this she needs 9 months? anyhow $mbi and NYDFS win

[BargainValueHunter]

More Twitter...

 

DCF_Modeller ‏@Orangeman1992

 

$MBI MBIA wins dismissal of lawsuit by BofA, SociGen that sought to overturn NY state’s approval of MBI’s 2009 restructuring.