MBI - MBIA Inc.

[fareastwarriors]

MBIA Inc. (MBI) won the dismissal of a lawsuit by Bank of America Corp. and Societe Generale SA (GLE) that sought to overturn New York state’s approval of the bond insurer’s 2009 restructuring.

 

MBIA rose 24.5 percent to $12.84 at 1:12 p.m. in New York, after the ruling today by New York State Supreme Court Justice Barbara Kapnick in Manhattan. The banks had sought to reverse approval under laws allowing challenges of New York state agency decisions.

 

Kapnick’s decision came after a nonjury trial in Manhattan last year. The banks claimed that the approval by former New York Insurance Department Superintendent Eric Dinallo was based on inaccurate and incomplete information provided by Armonk, New York-based MBIA and should be annulled under state laws.

 

Bank of America and Societe Generale have another lawsuit pending against MBIA over the restructuring in New York state court.

 

Kapnick said today’s decision doesn’t extinguish claims in that case.

 

The case is ABN Amro Bank v. Dinallo, 601846-2009, New York State Supreme Court (Manhattan).

 

 

 

 

http://www.bloomberg.com/news/2013-03-04/mbia-defeats-bofa-lawsuit-over-2009-restructuring.html

[muscleman]

Now this stock becomes a no brainer. ;D

[fareastwarriors]

MBIA Inc. (MBI) defeated a lawsuit by Bank of America Corp. (BAC) and Societe Generale SA (GLE) that sought to reverse approval of the bond insurer’s $5 billion asset-transfer because it cut money available to cover their policy claims.

 

MBIA rose 24 percent to close at $12.78 after Justice Barbara Kapnick of New York State Supreme Court in Manhattan dismissed the case. Bank of America and Societe Generale had sought to reverse the state approval under New York laws that allow court challenges to state agency decisions.

 

In 2009, New York Insurance Department Superintendent Eric Dinallo approved the split, allowing MBIA to move the company’s guarantees on state and municipal bonds out of subsidiary MBIA Insurance Corp., which guaranteed some of Wall Street’s most toxic mortgage debt.

 

The banks argued during a month of oral arguments last year that the approval was based on inaccurate and incomplete information provided by Armonk, New York-based MBIA. They say the split exposed them to losses as holders of financial- guaranty policies by siphoning more than $5 billion in assets from MBIA Insurance.

 

A second suit over the restructuring is still pending in New York state court.

 

Potential Roadblock

The dismissal removes one potential roadblock to MBIA’s efforts to jump-start its primary business of insuring municipal bonds. MBIA has told investors that as long as the litigation challenging the split remained, the company’s ability to win public-finance business would be constrained.

 

“We look forward to resolving the remainder of our litigation so that we can support the financing needs of towns and cities across America by re-establishing National Public Finance Guarantee Corp., our U.S. muni-only insurer, as a leader in the U.S. public finance insurance market,” MBIA Chief Executive Officer Jay Brown said in a statement.

 

The ruling may also remove one bargaining chip for Bank of America in lawsuits between it and the bond insurer, which is separately suing the lender to force it to buy back faulty loans that were included in residential-mortgage securities it insured.

 

Kapnick’s decision may spur Bank of America to offer MBIA a “reasonable settlement,” which could be $2.5 billion or more, Mark Palmer, an analyst for BTIG LLC, said in a blog post. A ruling in favor of Bank of America would have given the lender significant leverage in settlement talks, he said.

 

Reviewing Decision

The lawsuit over MBIA’s restructuring “has now largely been reduced to a lever in our ongoing dispute with Bank of America and its Countrywide subsidiary over their mortgage- putback obligations,” Brown said in a conference call last week.

 

Robert Giuffra, an attorney for the banks, said in an e-mail that he would appeal the decision.

 

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, and James Galvin, a spokesman for Paris-based Societe Generale, said they were reviewing the decision and that they would pursue their claims in a parallel lawsuit.

 

“We continue to believe that MBIA wrongfully transferred $5 billion from its structured finance subsidiary, to the harm of its policyholders, which we intend to prove in the separate fraudulent conveyance litigation that is underway,” Grayson said in a statement.

 

David Neustadt, a spokesman for the Department of Financial Services, declined to comment. The department merged the state’s banking and insurance regulators.

 

Regulatory Seizure

MBIA warned investors last week that there was “substantial doubt” about the ability of the MBIA Insurance unit to continue as a going concern. If it can’t reach an agreement with Bank of America, the lender could make claims on commercial-mortgage debt that MBIA guaranteed that the insurer said could leave it without sufficient funds and trigger a regulatory seizure.

 

S&P cited that risk in its downgrade of the National Public Finance unit last week, saying it may not be able to recover about a $1.6 billion intercompany loan to the old insurance unit if the regulator acts.

 

Legal Grounds

Bank of America and Societe Generale have a separate lawsuit in New York state court against MBIA over the restructuring. That complaint, which relies on different legal grounds, seeks to set aside the asset transfers. Kapnick said today’s decision doesn’t extinguish claims in that case.

 

“The issue before this court is whether there was a rational basis for the approval of the transformation or whether it was an arbitrary decision, taken without regard to facts,” Kapnick wrote in her decision. “The inquiry is not whether the result would have been different had the NYID hired certain experts or conducted the review on a different time line or with different resources.”

 

The case is ABN Amro Bank NV v. Dinallo, 601846-2009, New York State Supreme Court (Manhattan).

 

 

[valuecfa]

Now this stock becomes a no brainer. ;D

 

It's been a no brainer for quite awhile

 

edit:  ;D

[Rabbitisrich]

I'm a bit shocked at the size of today's move. Given court opinion in the dismissal motion on how the plaintiffs would have to show impairment, and the standard of proof against Dinallo, I thought that the market had largely priced in a victory on this front. Why on earth would investors have expected a state court to rule capriciousness or abuse on the part of an insurance commissioner? Crazy.

[valuecfa]

I'm a bit shocked at the size of today's move. Given court opinion in the dismissal motion on how the plaintiffs would have to show impairment, and the standard of proof against Dinallo, I thought that the market had largely priced in a victory on this front. Why on earth would investors have expected a state court to rule capriciousness or abuse on the part of an insurance commissioner? Crazy.

 

I think it is a tendency for investors to think that the market already knows what seems as obvious to you...especially when you have been discussing/researching it for such a long time.

 

 

[valuecfa]

A couple of commentaries on recent events:

 

snip:

...As we stated in our “Path to a Settlement” blog post on Feb. 13., we believe Judge Kapnick’s ruling represents BAC’s last bit of optionality in its effort to undermine MBIA’s efforts to force it into a settlement. If the judge had ruled that the NYID had acted in an arbitrary and capricious manner when it allowed the split, she could have then recommended to current NYSDFS Commissioner Benjamin Lawsky that he order that MBIA’s operating units be recombined. In such a scenario, MBIA’s shares likely would have come under significant pressure, and BAC would achieve significant leverage in settlement discussions.

 

Instead, MBIA’s split has been affirmed, the company’s shares have spiked, and BAC has lost whatever optionality that Article 78 may have represented.

 

Now, the clock starts ticking on New York State Supreme Court Justice Eileen Bransten’s ruling in MBIA v. Countrywide on the question of BAC’s successor liability for Countrywide, which we believe could be issued at some point in the next couple of months...

 

Read more: http://www.btigresearch.com/2013/03/04/mbia-catalyst-arrives-as-court-rules-in-bond-insurers-favor-in-article-78-removing-bofas-optionality/#ixzz2MdDbiqm9

 

and

 

http://mbibaclitigtion.blogspot.com/2013/03/double-doubletoil-and-trouble-articles.html

 

 

[muscleman]

Now this stock becomes a no brainer. ;D

 

It's been a no brainer for quite awhile

 

edit:  ;D

 

Why? If the ruling becomes adverse to MBI, and the bond modification failed, then it will become risky, isn't it?

Why do you think MBI is better risk/reward than AGO? I still don't understand that part, so I took long positions on both. Even up till now, AGO's performance has been better.

[valuecfa]

Now this stock becomes a no brainer. ;D

 

It's been a no brainer for quite awhile

 

edit:  ;D

 

 

Why? If the ruling becomes adverse to MBI, and the bond modification failed, then it will become risky, isn't it?

Why do you think MBI is better risk/reward than AGO? I still don't understand that part, so I took long positions on both. Even up till now, AGO's performance has been better.

 

I think if you review MBIA's operating supplement and review the portfolio of municipals it insures, and then compare to AGO's you will see a large discrepancy in the risk of the policies MBIA insures vs AGO. Both are good companies, but i prefer the risk reward of MBIA better. There is better downside protection as well as upside potential.

 

Also, in regards to MBIA ins corp. people like to look at BAC recoveries only, which is fine, yet there are also potential additional billion dollar recoveries not even including BAC.

 

All analysis i have seen, from analysts to others, values MBIA at a National minus holding company debt level, assigning no value to insurance corp., (which is fine) yet i think there will be value left over, and it could be a meaningful amount.

 

For those Fairholme followers, I think it is a bit interesting to look over Fairholme's Focused Income portfolio and see that although 40% of the fund is in MBIA bonds, 6% of the entire portfolio is in MBIA ins corp bonds. Perhaps, this implies that Fairholme believe the MBIA ins corp will have value left over as i do.

[Cardboard]

An interesting comment from a Yahoo board poster: AIG should buy out the put back claim from MBI or the entire MBI Insurance Corporation.

 

AIG has the resources to do that by flipping fingers and can also keep going the litigation forever against BAC which MBI can't do. It would give them further ammunition in their own case against BAC by pushing this trial to a successful end. Buying the entire corporation could also make sense since National is a pretty simple insurance business that would thrive under AIG.

 

Once again and as I said on the BAC warrants thread, it is unbelievable to me that Moynihan has not settled this yet. Of course, he will have to pay up! This is what happens when you continually lose your cases in court. IMO, we are now getting to a point where allies may invest in MBI to ensure that they are able to push their cases through in court or something that BAC does not seem to expect.

 

Cardboard

[BargainValueHunter]

An interesting comment from a Yahoo board poster: AIG should buy out the put back claim from MBI or the entire MBI Insurance Corporation.

 

AIG has the resources to do that by flipping fingers and can also keep going the litigation forever against BAC which MBI can't do. It would give them further ammunition in their own case against BAC by pushing this trial to a successful end. Buying the entire corporation could also make sense since National is a pretty simple insurance business that would thrive under AIG.

 

Once again and as I said on the BAC warrants thread, it is unbelievable to me that Moynihan has not settled this yet. Of course, he will have to pay up! This is what happens when you continually lose your cases in court. IMO, we are now getting to a point where allies may invest in MBI to ensure that they are able to push their cases through in court or something that BAC does not seem to expect.

 

Cardboard

 

Interesting but:

 

1. Are there any legal restrictions against AIG taking such actions (I don't even come close to having the legal education to understand this issue)?

 

2. Wouldn't such an announcement by AIG cause another instant rally in MBI deep into the double digits (not that it would be a terrible thing or anything)?

 

Maybe a good price for AIG would be around here and not ~$20 or so...

[Cardboard]

I think that $16 or even $20 paid by AIG would be a bargain for them. They have all the necessary knowledge in house on how to unwind a massive derivatives book (they just did it following the crisis). And a lot of cost cutting can be made. Then they have United Guaranty which could be a nice home for National: one is the largest mortgage insurer and the other would return to be the largest muni insurer.

 

FYI, it is not a certainty that MBI will be able to thrive with its National unit once court issues are resolved. It may take a while to get the necessary credit ratings and to gain acceptance and trust from municipalities and investors. It is a totally different scenario under AIG.

 

The more I think about it, the more I love it and I can't imagine laws or regulations preventing that from happening.

 

Cardboard

[mpauls]

Warburg will not sell for $20. Their equity average cost is $17 with warrant strike at $28. Berkowitz probably doesn't sell for $20 either.

[muscleman]

Now this stock becomes a no brainer. ;D

 

It's been a no brainer for quite awhile

 

edit:  ;D

 

 

Why? If the ruling becomes adverse to MBI, and the bond modification failed, then it will become risky, isn't it?

Why do you think MBI is better risk/reward than AGO? I still don't understand that part, so I took long positions on both. Even up till now, AGO's performance has been better.

 

I think if you review MBIA's operating supplement and review the portfolio of municipals it insures, and then compare to AGO's you will see a large discrepancy in the risk of the policies MBIA insures vs AGO. Both are good companies, but i prefer the risk reward of MBIA better. There is better downside protection as well as upside potential.

 

Also, in regards to MBIA ins corp. people like to look at BAC recoveries only, which is fine, yet there are also potential additional billion dollar recoveries not even including BAC.

 

All analysis i have seen, from analysts to others, values MBIA at a National minus holding company debt level, assigning no value to insurance corp., (which is fine) yet i think there will be value left over, and it could be a meaningful amount.

 

For those Fairholme followers, I think it is a bit interesting to look over Fairholme's Focused Income portfolio and see that although 40% of the fund is in MBIA bonds, 6% of the entire portfolio is in MBIA ins corp bonds. Perhaps, this implies that Fairholme believe the MBIA ins corp will have value left over as i do.

 

One good thing about MBIA is that the parent does not guarantee the structured sub's debt.

For AGO, the parent guarantees everything.

 

For the muni bonds, I couldn't figure out much. They both have general obligations as the largest portion, and then some utilities and tax bonds.

 

It is the structured finance portion of AGO that can be potentially troublesome. Is that what you see too?

I am a newbie investor, and I don't understand a lot of things. :P

 

[fareastwarriors]

Regulators Get Latitude in the Split of MBIA

 

http://www.nytimes.com/2013/03/08/business/court-ruling-against-banks-lets-mbia-benefit-from-splitting-up.html?ref=business

[valuecfa]

BAC adds additional counsel to its team in the MBIA case:

 

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=50q8prrNayxnZInScxrmyQ==&system=prod

 

and wouldn't you know...it's the same counsel representing them in the investor group's proposed $8.5 Billion settlement.

 

 

[muscleman]

BAC adds additional counsel to its team in the MBIA case:

 

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=50q8prrNayxnZInScxrmyQ==&system=prod

 

and wouldn't you know...it's the same counsel representing them in the investor group's proposed $8.5 Billion settlement.

Is this an implication that bag started to realize the potential disaster if they don't settle with mini quick?

[zippy1]

BAC adds additional counsel to its team in the MBIA case:

 

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=50q8prrNayxnZInScxrmyQ==&system=prod

 

and wouldn't you know...it's the same counsel representing them in the investor group's proposed $8.5 Billion settlement.

Is this an implication that bag started to realize the potential disaster if they don't settle with mini quick?

That thought crossed my mind when I saw the news.  Oh, do you mind not calling it "bag" as many of us have money in it?  :)

[valuecfa]

BAC adds additional counsel to its team in the MBIA case:

 

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=50q8prrNayxnZInScxrmyQ==&system=prod

 

and wouldn't you know...it's the same counsel representing them in the investor group's proposed $8.5 Billion settlement.

Is this an implication that bag started to realize the potential disaster if they don't settle with mini quick?

 

Can be interpreted as them prepping for a trial (perhaps SL appeal), as they are trial lawyers.

[Kraven]

BAC adds additional counsel to its team in the MBIA case:

 

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=50q8prrNayxnZInScxrmyQ==&system=prod

 

and wouldn't you know...it's the same counsel representing them in the investor group's proposed $8.5 Billion settlement.

Is this an implication that bag started to realize the potential disaster if they don't settle with mini quick?

 

Can be interpreted as them prepping for a trial (perhaps SL appeal), as they are trial lawyers.

 

Tough to know.  They are some of the best lawyers money can buy though.  Incredibly expensive.  The blended hourly rate on that team is going to be equal to about the annual budget for small countries.  I would find it somewhat strange to hire these guys in order to prep for a better settlement.  But who knows.  Maybe they need their expertise to button up a few last issues.  That's possible, although probably not likely.  We shall see though.

[muscleman]

BAC adds additional counsel to its team in the MBIA case:

 

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=50q8prrNayxnZInScxrmyQ==&system=prod

 

and wouldn't you know...it's the same counsel representing them in the investor group's proposed $8.5 Billion settlement.

Is this an implication that bag started to realize the potential disaster if they don't settle with mini quick?

That thought crossed my mind when I saw the news.  Oh, do you mind not calling it "bag" as many of us have money in it?  :)

 

Oh.  I think it is the damn auto spelling correction by iphone

[JRH]

This article quotes BoA's alleged settlement offer price in the negotiations (spoiler alert: it's pretty small!):

 

http://www.nypost.com/p/news/business/cash_crunched_mbia_needs_bank_deal_uGLXORbz0YLhPwCJl4dYON

[Cardboard]

Article in the NY Post quoting unnamed sources... Reminds me of the good old days with Fairfax when shorts were piling on.

 

Cardboard

[muscleman]

Article in the NY Post quoting unnamed sources... Reminds me of the good old days with Fairfax when shorts were piling on.

 

Cardboard

 

Cardboard, I started investing not as far back as the good old days of that short seller attack on Fairfax. So at that time, there were also a lot of short sellers trying to spread rumors on FFH, and NY post just report them at face value?

[valuecfa]

Even at 1 billion the company is undervalued if the split is eventually  finalized. Heads u win tails u win more.