BNP Paribas (BNP) and bond insurer MBIA (MBI) settled an ongoing legal dispute over MBIA’s 2009 corporate restructuring Tuesday, making analysts more optimistic about MBIA’s year ahead.

The New York Insurance Department confirmed a settlement was reached, but had no further comment.

“After two years of frivolous litigation against MBIA, the coalition of banks challenging MBIA’s transformation is beginning to collapse,” said Manal Mehta with Branch Hill Capital. “Over the course of 2012, MBIA should be able to do what it set out to do two years ago — to create a well capitalized muni bond insurer which will facilitate capital markets access for hundreds of smaller municipal issuers across the country.”

The settlement stems from a two-year battle over MBIA’s decision to transform the company in 2009. The plaintiffs originally accused MBIA of siphoning off $5 billion from its original insurance subsidiary to create a second firm in the heat of the financial crisis. The original suit, which included BNP Paribas and 20 other banking entities, challenged MBIA’s plan to transform its business under New York state’s Article 78. Financial firms also questioned the New York Insurance Department’s approval of the plan.

The list of original plaintiffs included Bank of America (BAC), Wells Fargo (WFC), HSBC Bank (HBC), Morgan Stanley (MS) and others. In the past year, many plaintiffs dropped out of the case or filed a settlement with the bond insurer.

BNP Paribas’ decision to settle with MBIA brings the remaining number of plaintiffs to six. That number is reduced to four when associated firms like Bank of America, Merrill Lynch, Natixis and Natixis Financial Products are counted as the same entities.

Wells Fargo dropped out of the suit in November, followed by the Royal Bank of Scotland (RBS) the same month. Then, in December, JPMorgan Chase (JPM) and Barclays (BCS) withdrew claims opposing the split of MBIA’s muni-bond insurance company and structured finance insurance operations.

Write to Kerri Panchuk.