MBI - MBIA Inc.

[racemize]

How much or estimate has BAC reserved specifically for MBIA's claims against them?

 

I believe this is undisclosed as it is in their litigation reserves.

 

Any clue as for example as a % of total litigation reserves?  That sort of estimate was what Ben Graham did so well in his prime, even regressing his calculations as inputs changed over time.

 

I haven't put too much effort into the MBIA reserves specifically, it seems like it should be in the 1-2 billion range as the suit isn't that large.  It seems the important aspects are the knock-on effects of the MBIA continued winning in courts, although it seems the BAC isn't too worried about them, for the most part.

[racemize]

The bondholders in article 77 lost over $100 bn. If the judge rules that BAC has to pay 100% of that loss, then BAC is dead.

 

There is no way that it's dead.  Any ruling against BAC gets appealed, and the settlement amount would go up.

 

BAC is at something like 9.5% capital ratio today under basel III.

 

Every 100 bps of capital ratio is about $14bln. 

 

Let's say the settlement grows from $8.5bln to $40bln.  That's about $31.5 bln increase, or 225 bps of capital ratio.  So it drags them down to 7.25%.

 

Hardly dead by any stretch, even if they had to immediately boost reserves $31.5 billion.

 

At that point, BAC only needs to boost it's capital by 125 bps to get back in the game for capital return.  That would take only $17.5 billion pre-tax earnings.  At current pace, that would take about a year.

 

So they can be at 8.5% Basel III by this time next year even if they today announce that they are boosting their settlement reserves all the way to $40bln from $8.5bln.

 

Then if the appeals process takes 3 years, you can up the amount to at least $80-$90 billion with BAC still painting it's nails.

 

But as soon as the ruling comes out, BAC has to deposit the money into a trust account during appeal time, and pay about 9% interest on that.

BAC cannot afford to have $100 bn deposit into a trust account. That would be the entire common tangible book value of BAC.

Though I think the probability of this happening is less than 1%, we all know it is greater than 0%. Why would BAC take such a risk of a potential wipe out, just to save about $1 bn more by not settling with MBIA immediately?

 

I don't think there's any real possibility for the entire 100 bn amount, or at least, other than you, I haven't seen that mentioned.  Eric's 30 billion came from Mayo, I think.  Plus, there are all the trust issues that MYDemaray and xaxp have discussed, if the 8.5 bn settlement doesn't go through. 

[MYDemaray]

How much or estimate has BAC reserved specifically for MBIA's claims against them?

 

I believe this is undisclosed as it is in their litigation reserves.

 

Any clue as for example as a % of total litigation reserves?  That sort of estimate was what Ben Graham did so well in his prime, even regressing his calculations as inputs changed over time.

 

I haven't put too much effort into the MBIA reserves specifically, it seems like it should be in the 1-2 billion range as the suit isn't that large.  It seems the important aspects are the knock-on effects of the MBIA continued winning in courts, although it seems the BAC isn't too worried about them, for the most part.

 

There was a press article a few pages back in the thread that (NYPost?...reliable, right...probably Page 6), that put BofA's number at $1Bn.

[ERICOPOLY]

The bondholders in article 77 lost over $100 bn. If the judge rules that BAC has to pay 100% of that loss, then BAC is dead.

 

There is no way that it's dead.  Any ruling against BAC gets appealed, and the settlement amount would go up.

 

BAC is at something like 9.5% capital ratio today under basel III.

 

Every 100 bps of capital ratio is about $14bln. 

 

Let's say the settlement grows from $8.5bln to $40bln.  That's about $31.5 bln increase, or 225 bps of capital ratio.  So it drags them down to 7.25%.

 

Hardly dead by any stretch, even if they had to immediately boost reserves $31.5 billion.

 

At that point, BAC only needs to boost it's capital by 125 bps to get back in the game for capital return.  That would take only $17.5 billion pre-tax earnings.  At current pace, that would take about a year.

 

So they can be at 8.5% Basel III by this time next year even if they today announce that they are boosting their settlement reserves all the way to $40bln from $8.5bln.

 

Then if the appeals process takes 3 years, you can up the amount to at least $80-$90 billion with BAC still painting it's nails.

 

But as soon as the ruling comes out, BAC has to deposit the money into a trust account during appeal time, and pay about 9% interest on that.

BAC cannot afford to have $100 bn deposit into a trust account. That would be the entire common tangible book value of BAC.

Though I think the probability of this happening is less than 1%, we all know it is greater than 0%. Why would BAC take such a risk of a potential wipe out, just to save about $1 bn more by not settling with MBIA immediately?

 

I don't think there's any real possibility for the entire 100 bn amount, or at least, other than you, I haven't seen that mentioned.  Eric's 30 billion came from Mayo, I think.  Plus, there are all the trust issues that MYDemaray and xaxp have discussed, if the 8.5 bn settlement doesn't go through.

 

Mayo said $30bn.  I upped it to $40 just to show how a big number can be digested rather calmly.

[ERICOPOLY]

In addition -- for everyone saying Moynihan is unreasonable -- Moynihan has already demonstrated that he will settle for reasonable amounts.  As Frankel put it in her latest "BofA continues to show that it's willing to settle on what it considers to be reasonable terms, most recently in its $165 million MBS deal with the National Credit Union Administration, which was announced Tuesday."

 

He simply thinks Brown is being unreasonable.

 

I think he is treating Uncle Sam differently than MBIA.

MBIA is liquidity strained, so if he drags the case long enough, MBIA will not be able to pursue 100% claim plus interest.

However, Uncle Sam has unlimited staying power, and has the leverage of pursuing criminal charges. That is totally different.

 

He has settled with private parties.  For example,

AGO != Uncle Sam

[ERICOPOLY]

But as soon as the ruling comes out, BAC has to deposit the money into a trust account during appeal time, and pay about 9% interest on that.

BAC cannot afford to have $100 bn deposit into a trust account. That would be the entire common tangible book value of BAC.

Though I think the probability of this happening is less than 1%, we all know it is greater than 0%. Why would BAC take such a risk of a potential wipe out, just to save about $1 bn more by not settling with MBIA immediately?

 

The key part of your statement being "as soon as the ruling comes out".

 

And when would that be?  Today, nobody is suing BAC for $100 bln.  That lawsuit first has to be filed.

 

And nobody can even do that as long as the $8.5bln settlement has yet to be tossed.

 

So do you think a major case like that will be filed and decided all within 12 months?  Or 24 months?  I put it at 3 years in my estimate, but it could well take longer than that.

 

And suppose it's only 24 months.  That would leave BAC at about a 7% capital ratio.  They most recently had a ratio somewhere in that neighborhood just a year ago if I recall correctly.

 

 

 

 

 

 

[muscleman]

In addition -- for everyone saying Moynihan is unreasonable -- Moynihan has already demonstrated that he will settle for reasonable amounts.  As Frankel put it in her latest "BofA continues to show that it's willing to settle on what it considers to be reasonable terms, most recently in its $165 million MBS deal with the National Credit Union Administration, which was announced Tuesday."

 

He simply thinks Brown is being unreasonable.

 

I think he is treating Uncle Sam differently than MBIA.

MBIA is liquidity strained, so if he drags the case long enough, MBIA will not be able to pursue 100% claim plus interest.

However, Uncle Sam has unlimited staying power, and has the leverage of pursuing criminal charges. That is totally different.

 

He has settled with private parties.  For example,

AGO != Uncle Sam

 

AGO got about 50% to 66% on the face. There are rumors saying BAC only wanted to settle with MBI for $1 bn, which is 25% on the face.

AGO is in a much stronger financial position than MBI, so maybe I should say, BAC is treating parties that has a strong staying power differently than parties with a weaker staying power.

In early 2012, if I remember correctly, Jay Brown said he expects to either settle with BAC in 2012 for 66% of the face, or 100% in 2013 through litigation. So I wouldn't say Jay Brown is unreasonable. (Maybe it is Bruce Berkowitz who said that instead of Jay Brown?)

[muscleman]

But as soon as the ruling comes out, BAC has to deposit the money into a trust account during appeal time, and pay about 9% interest on that.

BAC cannot afford to have $100 bn deposit into a trust account. That would be the entire common tangible book value of BAC.

Though I think the probability of this happening is less than 1%, we all know it is greater than 0%. Why would BAC take such a risk of a potential wipe out, just to save about $1 bn more by not settling with MBIA immediately?

 

The key part of your statement being "as soon as the ruling comes out".

 

And when would that be?  Today, nobody is suing BAC for $100 bln.  That lawsuit first has to be filed.

 

And nobody can even do that as long as the $8.5bln settlement has yet to be tossed.

 

So do you think a major case like that will be filed and decided all within 12 months?  Or 24 months?  I put it at 3 years in my estimate, but it could well take longer than that.

 

And suppose it's only 24 months.  That would leave BAC at about a 7% capital ratio.  They most recently had a ratio somewhere in that neighborhood just a year ago if I recall correctly.

 

I didn't spend too much time on article 77. Is it not for getting back all the loses for the investors?

[ERICOPOLY]

In addition -- for everyone saying Moynihan is unreasonable -- Moynihan has already demonstrated that he will settle for reasonable amounts.  As Frankel put it in her latest "BofA continues to show that it's willing to settle on what it considers to be reasonable terms, most recently in its $165 million MBS deal with the National Credit Union Administration, which was announced Tuesday."

 

He simply thinks Brown is being unreasonable.

 

I think he is treating Uncle Sam differently than MBIA.

MBIA is liquidity strained, so if he drags the case long enough, MBIA will not be able to pursue 100% claim plus interest.

However, Uncle Sam has unlimited staying power, and has the leverage of pursuing criminal charges. That is totally different.

 

He has settled with private parties.  For example,

AGO != Uncle Sam

 

AGO got about 50% to 66% on the face. There are rumors saying BAC only wanted to settle with MBI for $1 bn, which is 25% on the face.

AGO is in a much stronger financial position than MBI, so maybe I should say, BAC is treating parties that has a strong staying power differently than parties with a weaker staying power.

In early 2012, if I remember correctly, Jay Brown said he expects to either settle with BAC in 2012 for 66% of the face, or 100% in 2013 through litigation. So I wouldn't say Jay Brown is unreasonable. (Maybe it is Bruce Berkowitz who said that instead of Jay Brown?)

 

The point I was trying to make is that AGO didn't have the leverage that you claim the government has, and yet BAC still settled with them.

 

You wrote:

Uncle Sam has unlimited staying power, and has the leverage of pursuing criminal charges. That is totally different.

 

I believe your point was that BAC is unwilling to settle on reasonable terms unless the party has unlimited staying power.  Well, I didn't see AGO as fitting that description.

 

EDIT:  I guess I would like the comparison more if you can explain how MBI doesn't have the amount of leverage that AGO had.  I think you were overplaying your hand by comparing MBI with the government -- rather, I would find it more reasonable to compare MBI with the other private parties that BAC has settled with, such as with AGO using my example.  You might still have a point, but unlimited staying power or threat of criminal charges isn't what supports the point.

 

 

[ERICOPOLY]

But as soon as the ruling comes out, BAC has to deposit the money into a trust account during appeal time, and pay about 9% interest on that.

BAC cannot afford to have $100 bn deposit into a trust account. That would be the entire common tangible book value of BAC.

Though I think the probability of this happening is less than 1%, we all know it is greater than 0%. Why would BAC take such a risk of a potential wipe out, just to save about $1 bn more by not settling with MBIA immediately?

 

The key part of your statement being "as soon as the ruling comes out".

 

And when would that be?  Today, nobody is suing BAC for $100 bln.  That lawsuit first has to be filed.

 

And nobody can even do that as long as the $8.5bln settlement has yet to be tossed.

 

So do you think a major case like that will be filed and decided all within 12 months?  Or 24 months?  I put it at 3 years in my estimate, but it could well take longer than that.

 

And suppose it's only 24 months.  That would leave BAC at about a 7% capital ratio.  They most recently had a ratio somewhere in that neighborhood just a year ago if I recall correctly.

 

I didn't spend too much time on article 77. Is it not for getting back all the loses for the investors?

 

My understanding is that BAC agreed to settle for $8.5bln, and that all of the injured parties are bound to the terms of the settlement unless they can get the settlement tossed in the article 77 proceeding.  After that point, and only after that point, can they then proceed to go after BAC on their own with a new round of lawsuits.

[JRH]

I guess I would like the comparison more if you can explain how MBI doesn't have the amount of leverage that AGO had.  I think you were overplaying your hand by comparing MBI with the government -- rather, I would find it more reasonable to compare MBI with the other private parties that BAC has settled with, such as with AGO using my example.  You might still have a point, but unlimited staying power or threat of criminal charges isn't what supports the point.

 

I think everyone is treating the "precedental" nature of previous settlements as equivalent to "reasonable".  Who's to say any previous settlement amounts have been reasonable?  If MBIA can recover $X in 2015 through legal action, then why isn't a "reasonable" settlement just that number discounted back to today and adjusted for whatever level of uncertainty they feel with their chances of winning?

 

I think it is easier to believe that regardless of what "reasonable" is, BofA probably has more leverage by holding MBIA's feet over the fire on the possible future receivership of MBIA Corp.

[ERICOPOLY]

I guess I would like the comparison more if you can explain how MBI doesn't have the amount of leverage that AGO had.  I think you were overplaying your hand by comparing MBI with the government -- rather, I would find it more reasonable to compare MBI with the other private parties that BAC has settled with, such as with AGO using my example.  You might still have a point, but unlimited staying power or threat of criminal charges isn't what supports the point.

 

I think everyone is treating the "precedental" nature of previous settlements as equivalent to "reasonable".  Who's to say any previous settlement amounts have been reasonable?  If MBIA can recover $X in 2015 through legal action, then why isn't a "reasonable" settlement just that number discounted back to today and adjusted for whatever level of uncertainty they feel with their chances of winning?

 

I think it is easier to believe that regardless of what "reasonable" is, BofA probably has more leverage by holding MBIA's feet over the fire on the possible future receivership of MBIA Corp.

 

I thought they didn't have that leverage because of the threat of what an adverse ruling means for them (per Cardboard).

 

 

 

[JRH]

I thought they didn't have that leverage because of the threat of what an adverse ruling means for them (per Cardboard).

 

I didn't say that, and I don't agree with that (although I also don't profess anything beyond speculation).  But one thing I am certain of is that just because settlements have occurred does not automatically make them reasonable.

[MYDemaray]

And when would that be?  Today, nobody is suing BAC for $100 bln.  That lawsuit first has to be filed.

 

And nobody can even do that as long as the $8.5bln settlement has yet to be tossed.

 

...and even then, the private security holders are highly constrained by the pooling and servicing agreements and statute of limitations

[muscleman]

In addition -- for everyone saying Moynihan is unreasonable -- Moynihan has already demonstrated that he will settle for reasonable amounts.  As Frankel put it in her latest "BofA continues to show that it's willing to settle on what it considers to be reasonable terms, most recently in its $165 million MBS deal with the National Credit Union Administration, which was announced Tuesday."

 

He simply thinks Brown is being unreasonable.

 

I think he is treating Uncle Sam differently than MBIA.

MBIA is liquidity strained, so if he drags the case long enough, MBIA will not be able to pursue 100% claim plus interest.

However, Uncle Sam has unlimited staying power, and has the leverage of pursuing criminal charges. That is totally different.

 

He has settled with private parties.  For example,

AGO != Uncle Sam

 

AGO got about 50% to 66% on the face. There are rumors saying BAC only wanted to settle with MBI for $1 bn, which is 25% on the face.

AGO is in a much stronger financial position than MBI, so maybe I should say, BAC is treating parties that has a strong staying power differently than parties with a weaker staying power.

In early 2012, if I remember correctly, Jay Brown said he expects to either settle with BAC in 2012 for 66% of the face, or 100% in 2013 through litigation. So I wouldn't say Jay Brown is unreasonable. (Maybe it is Bruce Berkowitz who said that instead of Jay Brown?)

 

The point I was trying to make is that AGO didn't have the leverage that you claim the government has, and yet BAC still settled with them.

 

You wrote:

Uncle Sam has unlimited staying power, and has the leverage of pursuing criminal charges. That is totally different.

 

I believe your point was that BAC is unwilling to settle on reasonable terms unless the party has unlimited staying power.  Well, I didn't see AGO as fitting that description.

 

EDIT:  I guess I would like the comparison more if you can explain how MBI doesn't have the amount of leverage that AGO had.  I think you were overplaying your hand by comparing MBI with the government -- rather, I would find it more reasonable to compare MBI with the other private parties that BAC has settled with, such as with AGO using my example.  You might still have a point, but unlimited staying power or threat of criminal charges isn't what supports the point.

 

No, bro. I think I didn't explain my point clearly, but my point is that BAC's perception of what is reasonable is probably dependent on how much leverage the other party has.

1. Government. BAC paid 100% of the claims to Fannie Mae or Freddie Mac.

2. AGO. BAC paid 50-66% to AGO.

3. MBI. There are rumors saying BAC wants to pay only 25%.

 

#1 has unlimited staying power, clearly.

#2 has reasonable staying power, so BAC knows dragging the game won't eventually work out.

#3 has the least staying power, so BAC tries the best to drag as long as possible, and what it thinks is reasonable for AGO is likely not reasonable for MBI.

 

I hope I have explained this clearly now. :)

[Cardboard]

Another mistake that people are making IMO is putting too much weight behind this latest commentary from Herzeca that the NYDFS won't be too hard with BAC and only seek money to repay the intercompany loan. Excuse me? BAC has dragged in the mud people working at the NYDFS and since they have no business with banking, they will certainly love inflicting as much pain as possible to these SOB's.

 

Ignoring the vendetta aspect of it, the NYDFS will still see a fiduciary duty to extract enough money from BAC to ensure that National is on solid footing AND to also honor policies written by MBIA Insurance Corp. Their job being to protect policyholders will mean all of them including the ones at MBIA Insurance Corp. and ironically that includes BAC! The problem for BAC is that they may end up paying 100% plus interest on their put-backs going that route. That seems to be the risk that they are willing to take.

 

Regarding Saint Brian Moynihan, I wonder how you guys interpret this very nasty move that they made trying to block their consent solicitation in late 2012. Then even "blowing" money by buying MBI bonds, which based on their actions will end up bankrupt??? Are these the actions of an honest, willing party to settle on reasonable terms? Or the ones of a powerful player trying to use its power to corner a smaller one while it knows fully that it is contractually liable to be subject to a put-back clause on all its fraudulent loans? It is actually interesting that the court document refers to the Ackman vs Icahn case on the rescission decision.

 

Cardboard

[ERICOPOLY]

BAC has dragged in the mud people working at the NYDFS and since they have no business with banking, they will certainly love inflicting as much pain as possible to these SOB's.

 

There was a comment made that Moynihan had more recently praised Fannie Mae executives in late 2012 public appearances, and that good will gesture helped the parties reach a settlement.

 

You comment here about BAC dragging people at NYDFS through the mud I believe is valid, because it will create personal ill will such as you describe.  Likewise, Jay Brown's trash talking might have turned this into a personal vendetta for the BofA executives.  He hasn't exactly kept the language clean and professional.

 

But I'm actually 100% in agreement with you on just taking the hit, settling, and moving on.  But I don't pound the table for it as hard because I feel like I don't fully understand the nuances of why they might be reticent.  I hope it isn't simply because Jay Brown is publicly being an asshole towards the BAC management, but who knows.  If you think NYDFS could take something personally, then why not BAC?

[Cardboard]

BAC is taking it personally. Moynihan likely did not like at all being forced to testify last year. He had to come down from his ivory tower.

 

Something else that people are forgetting. Many on this board seem to believe that BAC's problems are behind it and that the present state is the worst state. Wait until Murphy's law starts to manifest itself...

 

What I ear from you Ericopoly and others is that BAC can easily absorb whatever losses comes its way. Really? What is going to happen in say two years from now when BAC is hit with a $10 or $20 billion shortfall in its litigation provision and another recession is in full swing with housing prices down again, countries around the world in recession and junk bonds defaulting left, right and center? Asset prices down significantly, some bank runs occurring and CDS through the roof. The Fed stress test tries to assess such scenario, but even the two of them could not even figure out where they would end up using fixed assumptions which would also turn out very different in a dynamic state.

 

A fortress balance sheet is a fortress balance sheet and as Buffett said, the best time to take care of a problem is now. Do you guys remember the Fairfax experience or the 2002-2006 saga? What looked like a done deal in mid 2003, only ended up with large stock dilution in later years due to hurricanes, bad reserving, etc. Surprises will occur and I doubt that they will be of the pleasant kind for BAC. They need to get this over with now! Buy out MBI if necessary, but get it done.

 

Of course, I stand to benefit if MBI gets a positive settlement, but I am quite afraid by this BAC cavalier approach with their litigation and what is and could be the impact on my larger BAC position. I have seen them willing to do a terrible deal with Buffett just to get a seal of approval that their franchise is a good one while they clearly believed that they did not need money (that is per Moynihan on Charlie Rose). With poor judgement like that, what is going to be done when they truly need money?

 

Cardboard

[ERICOPOLY]

What I ear from you Ericopoly and others is that BAC can easily absorb whatever losses comes its way. Really? What is going to happen in say two years from now when BAC is hit with a $10 or $20 billion shortfall in its litigation provision and another recession is in full swing with housing prices down again, countries around the world in recession and junk bonds defaulting left, right and center? Asset prices down significantly, some bank runs occurring and CDS through the roof. The Fed stress test tries to assess such scenario, but even the two of them could not even figure out where they would end up using fixed assumptions which would also turn out very different in a dynamic state.

 

Funny you should mention that.  I started reading the Fairfax letters again the past couple of weeks and bought up some FFH using portfolio margin (hedging out BAC risk with at-the-money puts).

 

Then I also have some MBI exposure from writing puts (this time to purchase some $10 strike BAC hedges).  It is quite interesting to me that it is more expensive to insure MBI at $3 strike than to insure BAC at $10 strike.

 

Ironically though, while you were complaining that Moynihan didn't ask for enough capital return I was quietly relieved given that these legal reserves might need more boosting.

 

 

 

 

[Cardboard]

"Ironically though, while you were complaining that Moynihan didn't ask for enough capital return I was quietly relieved given that these legal reserves might need more boosting."

 

Degree of magnitude, use and timing explain what you imply is illogical. I was expecting a few billions more to boost the dividend during a period of calm. Every advisor these days is pushing people into dividend stocks. This would have done wonders for BAC. If it could lose that speculative aspect to it and trade more like JPM, WFC and even C, it would provide a much larger margin of safety than its current state if the going gets tough.

 

It is not $2-3 more billions in return of capital that will hurt BAC, but $10's of billions if it continues dragging dangerous litigation and potential shareholder dilution if it happens at the wrong time. Not counting the uncertainty cost that comes with it and massive lawyer fees. Racemize mentioned trusting BAC lawyers who are mainly outsiders, what do you think their incentives are?

 

Cardboard

[valuecfa]

Countrywide attny's letter to the judge:

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

[valuecfa]

I contacted an analyst covering MBIA to converse about the perfected secured National loan. This is a snip of his response:

 

... this is a loan secured by the potential proceeds from settlements as well as other assets that was signed off on by the Commissioner. To protect the interests of structured-product policyholders over muni policyholders would be robbing Peter to pay Paul while opening Lawsky up to litigation - perhaps another Article 78 - at a time when he needs a clean track record post the Standard Chartered/Iran debacle so he can run for NYAG.

 

 

----

 

I also reached out to a securities attorney on the same topic...response snip below:

 

who would object?

 

1)  NYDFS, which would be running the rehabilitaton?  MBIA has disclosed NYDFS specifically approved the loan on the terms made, when made.  Why would NYDFS suddenly change its mind. It's not likely

 

2)  Another creditor of MBIA insurance?  quite possible. But there are no grounds since the transaction was approved by NYDFS and MBIA insurance got funds to commute morgan stanley's cds

[ERICOPOLY]

"Ironically though, while you were complaining that Moynihan didn't ask for enough capital return I was quietly relieved given that these legal reserves might need more boosting."

 

Degree of magnitude, use and timing explain what you imply is illogical.

 

I'm not saying what you said was illogical.  I'm saying that the "irony" is that while you suggest I'm being optimistic about how BAC can handle a much larger settlement, what I'm really doing here behind the scenes is biting my nails and being grateful that BAC is still accumulating capital given that we're still not with a settlement in hand.  So basically to rephase, it's ironic that I've spend the past couple of weeks worrying about this very scenario but then you mentioned that I appear to be rather unconcerned about their being able to handle a bigger settlement. 

 

I too want them to settle and have this risk behind them.  I fully agree it's worthwhile to just eat a billion extra here or there to eliminate the possible tens of billions of risk here.

 

I've heard you time and again state that you both want them to get this behind them at perhaps an extra billion in cost, while at the same time boost capital return.  I fully understand that your statement is both actions taken as a whole.  You don't want them to both leave this huge exposure to risk as well as return capital -- you want the $1b or so extra settlement hit which costs them pennies per share, as well as getting the boost to capital return after they've got it behind them.  A single transaction (sorry, tech speak), not one without the other.

 

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.  You know, I once criticized the Buffett deal maybe a couple of months ago, as well as that December '11 capital raise at $6 per share, and a well respected board member sent me this scathing rebuke in personal email.  So maybe he'll harass you too  :(  No worries, he can just be ignored but I just thought you might understand why I stopped being so critical.

 

 

[racemize]

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

[valuecfa]

Silly me that i didn't know what the term "perfected" secured loan meant either til today. In case I'm not the only one:

 

-The "perfection" of a security agreement allows a secured party to gain priority to the collateral over any third party. To perfect a security agreement, the filing of a public notice is usually required.