recent bond cov change now allows MBIA to use MBIA Insurance as an option play...
1. if they settle with BAC... most of MBIA Insurance's toxic assets are absorbed by BAC, the settlement amount is used to pay back the loan to National, and the rest of that amoutn then goes into MBIA Insurance as a pure equity injection.
a. if a large amount of the policies are absorbed by BAC and the market stabilizes, MBIA Insurance has the opportunity to be a performing entity with premium run-off value at the least.
b. if the remaining assets on MBIA Insurance's books remain toxic, MBIA can let it go into rehabilitation and let the creditors fight over what is left (BAC, as an unsecured creditor, actually has a CHANCE of recovering some of that $ they paid to MBIA)
2. if they dont settle with BAC and MBIA Insurance becomes even weaker... MBIA voluntarily tosses MBIA Insurance into bankruptcy, allowing for Lawsky and his boys to use their infinite $ and time horizon to stick it to BAC for pulling them into this mess, while allowing for National to keep performing on its own with no real ramifications.
a. if lawsky wins against BAC or they settle, the proceeds FIRSTLY go to National to pay back the loan (since National is Lawskys biggest concern) and the rest of the $ (which will be small than what MBIA would have settled for) is thrown to the creditors where BAC most likely gets nothing.
b. if lawsky loses., National never gets paid back on its loan to MBIA Insurance, so the value must be revised downward, but it is still on firm footing.
so who has more to lose?
where am i wrong?
Sean... you are right... and National is worth mid-teens so you will not lose money. Did you see the ruling on Stockton Ca... There was a big number of shares traded at the end of the day...
Obviously, it is just speculation as I don't understand their exposures to financial instruments. Jay Brown makes it sound like it is just Merrill exposures but he has lied so much that you (1) have to worry about non-Merrill exposures and (2) don't know what the true Merrill loss exposures are as they have not provided information on the actual deals. Most BBB deals from the era are trading at less than 10 cents on the dollar and MBIA does not provide mark to market information so their reserves may be very severely understated (actually I'm very confident they are severely understated).
Banks do have the plenary even if MBIA wins the Article 78 so there is going to to be moderate to severe leakage from the MUNI insurer as that particular case is extremely weak for MBIA. Many people want to believe that once the Article 78 is decided in MBIA's favor that it is over but it isn't. Other policy holders will ultimately jump in if MBIA loses the plenary so they do have much to lose here and no one is addressing it. I'm guessing they would simply agree to provide indemnification.
MBIA has, in my opinion, committed acts that could lead to legal action against senior management along the lines of what has happened at UBS. If say they win the Article 78 and lose the plenary, it makes the State look bad if they do nothing so they will want to re-establish moral authority and fining MBIA or putting Jay Brown in jail will help. Re-establishing authority becomes absolutely critical if they lose the Article 78 so as I have said before I think Jay Brown has real personal legal exposure that ultimately comes back to the company. I think it is still a year away before these things really start to come into focus and it is obviously hard to predict these sorts of things too so I may be wrong in my judgement that MBIA will ultimately get the scrutiny it deserves. The State may not care about having moral authority.
So ultimately I think you misjudge that the State of NY is going after BAC. They have already gone after BAC in multiple ways and they severely hurt the company but they have gotten beyond it. They went after BAC first and foremost, the other banks are just now really starting to get the attention. The FHFA is the only significant player left that could present real material problems. Doesn't mean there won't be other lawsuits, just that BAC has already absorbed most of the damage (with possible exception of FHFA).
A year ago I would have said that BAC has to keep fighting but at this point in time they can afford to settle or they can keep fighting. MBIA sure looks like they can't afford to settle and therefore has much to lose.
exactly. BAC can't escape reality. they have to pay for Countrywide and thus stop the bleeding.
If they force BMI national in BK, this action will come back to bite them. Regulators are not so dumb and can see how BAC is trying to bully MBI.