MBI Saga Over: Bank Of America To Settle Long-Running Litigation, Take 5% Stake; MBIA Stock Soars 50%

Tyler Durden's picture

The seemingly endless MBIA saga, in which the mortgage insurer sued Bank of America and where a settlement has been overdue for some two years (see here), is finally coming to an end. Moments ago Dow Jones reported what the final settlement may look like: $1.6 billion in cash as well as a $500 million line of credit. Just as notable, BAC will buy a 5% equity stake in the name. MBIA was briefly halted as a circuit breaker was triggered, and has continued to surge following the unhalt. As a reminder, a settlement in this case may push the company into the $20 handle realm. Finally, our report from September 2011 on MBIA's potential to be the next Volkswagen courtesy of its massive short interest as a percent of float can be found here.

The WSJ, which broke the news, has more:

Bank of America will pay MBIA $1.6 billion in cash, along with some other compensation, and provide MBIA with a credit line of $500 million. BofA will also take a stake in MBIA's holding company of roughly 5%.

 

The settlement follows talks that have been on-again/off-again for more than six months, said people familiar with the matter. The two sides worked through the weekend, as did New York Department of Financial Services Superintendent Benjamin Lawsky, to bring about the deal.

 

It is one of the last overhangs for MBIA, which was sued by more than a dozen banks over its split during the financial crisis into one healthier bond insurer that focuses on guaranteeing municipal-bond payments and another that insured complex financial instruments and mortgage securities that soured during the crisis.

 

Mr. Lawsky inherited the matter when he took over as New York's superintendent of financial regulation in October 2011, and he has pushed for more than a dozen deals with banks and MBIA to try to keep the state from taking it over, which is known as receivership.

BofA is surging...

 

But not like MBIA...

 

And from BTIG as of 2011 which predicted this final outcome, and a $22.50
price target if and when the long-overdue settlement was finally
reached.