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Morgan Stanley Reaches Comprehensive Settlement With MBIA

Tyler Durden's picture




 

A core portion of the MBIA thesis has been validated. Furthermore, the settlement hit to earnings of $1.8 billion is precisely as we expected back in March when we stated, "As Morgan Stanley Unwinds Its Massive MBIA CDS Losing Position, Is A Billion+ Hit To Earnings Coming?" Expect the short covering in MBIA to spring into action today. And hilariously, MBI short interest rose into the end of November! To those who followed our suggestion back in September and bought MBIA, congratulations on the 50% gain. It is likely that the true "squeeze thesis" upside is only yet to be uncovered.

Just out:

  • BFW 12/13 13:42 Morgan Stanley Sees Pretax Loss on MBIA Settlement $1.8b
  • BN 12/13 13:42 *CORRECT: MS SAYS CMBS CDS PROTECTION BOUGHT FROM MBIA ENDED 
  • BN 12/13 13:41 *MORGAN STANLEY MOVE TO RELEASE EQUAL OF $5B CAPITAL TO BASELIII 
  • BN 12/13 13:41 *MS SAYS PACT TERMINATES OUTSTANDING CDS PROTECTION FROM MBIA 
  • BN 12/13 13:41 *MORGAN STANLEY IN SETTLEMENT WITH MBIA, SEES $1.8B PRETAX LOSS
  • BN 12/13 13:41 *MS SAYS CHARGE EQUALS ABOUT $1.2B AFTER TAX             :MS US
  • BN 12/13 13:41 *MORGAN STANLEY RESOLVES PENDING SUIT FOR CASH PAYMENT TO MS 
  • BN 12/13 13:40 *MORGAN STANLEY SEES ABOUT 75 BASIS POINT BOOST PROFORMA TIER 1
  • BN 12/13 13:40 *MORGAN STANLEY SES PRE-TAX LOSS ON THE SETTLEMENT $1.8B :MS US 
  • BN 12/13 13:40 *MORGAN STANLEY REACHES COMPREHENSIVE SETTLEMENT WITH MBIA

From the press release:

Morgan Stanley (NYSE: MS) today announces a comprehensive settlement with MBIA that better positions the Firm for Basel III by resolving outstanding legacy exposures and releases capital to reinvest in our client-focused businesses.
 
The comprehensive settlement terminates outstanding credit default swap (CDS) protection purchased from MBIA on commercial mortgage-backed securities (CMBS) and resolves pending litigation between the two parties for consideration of a net cash payment to Morgan Stanley. MBIA will withdraw its residential mortgage backed securities related suit against Morgan Stanley and Morgan Stanley will withdraw from suits challenging MBIA’s restructuring. The pre-tax loss on the settlement will approximate $1.8 billion ($1.2 billion after-tax) in the current quarter. Importantly, the settlement has the effect of significantly reducing risk-weighted assets and releasing the equivalent of approximately $5 billion of capital under the Basel Committee’s proposed Basel III framework, thereby increasing the pro forma Tier 1 Common ratio under Basel III by approximately 75 basis points by the end of 2012. Under current Basel I standards, the Tier 1 Common ratio will be reduced by approximately 30 basis points.
 
James P. Gorman, President and Chief Executive Officer, said, "It's critical that we reposition for the new regulatory environment and do so quickly. A top priority for 2011 was to address this large outstanding legacy exposure and this settlement is consistent with our efforts to build capital and de-risk the balance sheet. Putting this behind us removes earnings volatility and meaningfully improves our pro forma Tier 1 Common ratio under Basel III."
 

 

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Tue, 12/13/2011 - 10:01 | 1973474 AngryGerman
AngryGerman's picture

James P. Gorman, President and Chief Executive Officer, continued, "We are on a good road to secure our multi-million bonuses, also for coming years. And if they ever again are threatened, we just call again upon the taxpayer to bail us out."

Tue, 12/13/2011 - 10:04 | 1973482 fonzanoon
fonzanoon's picture

So is this bad for MS? Can't they just do another one of those accounting doohickey tricks where they buy their own bonds and claim a 3 trillion dollar earnings beat? Everyone celebrates. The next day a few people mumble that it was a trick and then we all move on.

Tue, 12/13/2011 - 10:10 | 1973505 Stax Edwards
Stax Edwards's picture

Excellent Call TD, MBI gangbusters in pre

Tue, 12/13/2011 - 10:20 | 1973547 mspgrandi
mspgrandi's picture

ha!

missed out on this trade. :-(

can anyone suggests what happens next to mbia? massive spike on the next two day the occasion of a lifetime to short?  i mean, is the company actually making any money at the moment (litigiations apart) or is its model broken?

Tue, 12/13/2011 - 10:24 | 1973582 NumberNone
NumberNone's picture

Kudos to ZH and TD for the trade.  I jumped all over this at $9.  Nice Christmas gift today.  I like the prospect of much more short covering.  Love this site. 

Tue, 12/13/2011 - 12:15 | 1974253 golfrattt
golfrattt's picture

Wow, the entire Mbi pop off today's news retraced, the whole fucking thing...

I'd say Buy and Hold is alive and well...

NOT...!!!!!!!!!!!!!

Tue, 12/13/2011 - 15:06 | 1975092 Matt
Matt's picture

$1.8  billion is a lot of money for a company with a $2.2 Billion market cap ... any estimates on how much actual earnings this settlement will generate?

Wed, 12/14/2011 - 13:40 | 1979324 Matt
Matt's picture

WSJ reports MBIA is paying Morgan Stanley $1.1 Billion as part of the settlement http://online.wsj.com/article/SB10001424052970203518404577096173087163522.html 

Sun, 12/18/2011 - 11:11 | 1991373 ThrivingAdmistC...
ThrivingAdmistCollapse's picture

Arrrrgh, that was a good trade!  I wish I was able to buy that stock before it happened.  www.survivingeconomiccollapse.net

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