MBIA settlement with BofA likely: CreditSights
Any settlement between MBIA Insurance Corp. (MBI) and Bank of America (BAC), would add liquidity to the beleaguered insurer that could easily carry the firm another few years. Rob Haines, analyst with CreditSights, said his firm recommends investors "sell one- to three-year protection on MBIA," and "at this time we can say with a high degree of confidence that at a minimum, liquidity is sufficient to meet claims over the next three years." Last week, an appeals court ruled Bank of America and Countrywide Financial Corp. still have to face a fraud claim that MBIA brought, alleging Countrywide fraudulently represented mortgage-backed securities MBIA ended up insuring. Bank of America assumed responsibility for the loans included in the MBS when it acquired the fledgling subprime lender three years ago. Haines believes a settlement between BofA and MBIA is likely and could "alleviate any near to intermediate liquidity concerns" at MBIA. He said even without a settlement, the bond insurer's liquidity levels are expected to increase. MBIA has $2.8 billion in cash and invested assets and $526 million in cash and short-term investments. Haines pointed to another ruling from New York appellate court last week that reinstated a $5 billion lawsuit BofA and several other big banks have against MBIA. The banks allege the restructuring of MBIA a few years back left the insurer undercapitalized and unable to handle claims on insured bonds. Haines said there is a marginal chance the the restructuring will be reversed. However, he wrote, "in the event of a reversal of the split, MBIA Corp. swaps would rally sharply." He believes it's likely MBIA will receive $800 million from its holding company by November — funds that could be used to pay off RMBS and other claims on insured bonds, according to Haines. He said the worst case scenario would be a liquidity freeze. "This would likely happen only if the putback issue is not settled. Under the worst case scenario, regulators would not actually seize the company because MBIA Corp. could still prevail in its litigation, but the entity could be forbidden from paying claims," according to the CreditSights analyst. Write to: Kerri Panchuk.