MBIA Inc. (MBI) may have underestimated its exposure to insurance claims on subprime mortgage-backed securities and credit default swaps by $10 billion, according to a new report from BlackRock Inc. (BLK). A coalition of major banks is challenging a New York State Insurance Department decision to allow the transformation of MBIA in the midst of the economic meltdown of a few years ago. The plaintiffs included the findings of BlackRock Solutions in a court brief filed in New York this week. The plaintiffs — including Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPC) and others — allege the New York regulator and its superintendent, Eric Dinallo, approved "one of the largest fraudulent conveyances in history" when permitting MBIA to create a second mortgage insurer, using $5 billion siphoned from the company's original insurance subsidiary. The plaintiffs in the case hold MBS and structured finance products insured by MBIA. In court records, the plaintiffs claim when "facing the prospect of billions in additional losses" tied to structured finance products, MBIA managed to get the New York State Insurance Department to approve a transformation plan that created one profitable mortgage insurance unit and another that had less liquidity available to handle high-cost claims from MBS and CDS investors. The BlackRock report is the plaintiffs' latest attempt to prove the Insurance Department approved MBIA's transformation without knowing the amount of losses they faced on claims. Chuck Chaplin, MBIA's president and chief financial officer, said the company believes the charges "are without merit and we remain confident that the court will affirm the New York State Insurance Department’s decision to approve MBIA’s transformation, which came after a thorough and careful analysis." "MBIA Insurance Corp. was solvent then and remains so today, two years and two unqualified audit opinions later," Chaplin said. While BlackRock describes itself as an independent firm with "no single majority stockholder," at least one plaintiff in the case has ties to the analytics firm. Merrill Lynch & Co., a subsidiary of BofA, owns a 7.1% stake in BlackRock, according to the company's website. Write to Kerri Panchuk.