A legal battle lasting better than a year between Bank of America and Armonk-based bond insurer MBIA with the potential for a trial with $4.5 billion at stake has ended with an agreement to shake hands on a $1.7 billion settlement and walk away partners.
The settlement reportedly sees Bank of America paying MBIA $1.6 billion in cash and another $137 million in financial instruments, plus a stock option. The deal also includes a $500 million secured, revolving credit agreement with Bank of America, wherein MBIA can use the money for “general corporate purposes.”
“This comprehensive and important settlement is a very positive step forward for both Bank of America and MBIA,” said state Department of Financial Services Superintendent Benjamin Lawsky in a prepared statement. “It is the culmination of more than a year of negotiations. It resolves significant exposure and expensive litigation for Bank of America, while also giving MBIA a path forward. We appreciate both parties’ willingness to work in a reasonable fashion to find common ground. Ultimately, this settlement is good for all sides, but most importantly, it is good for our financial markets and for our financial system.”
In 2011, the state rolled its finance and insurance oversight into the Department of Financial Services, bringing both MBIA and Bank of America under the department”™s umbrella.
The antagonisms between former adversaries MBIA and Bank of America date to the mortgage crisis. During the downturn, Bank of America bought a number of companies, including national mortgage lender Countrywide and finance giant Merrill Lynch. Merrill at the time was allegedly owed some $3 billion from MBIA. But MBIA at the same time was accusing Countrywide of misleading data on Countrywide”™s troubled mortgages, which MBIA had insured.
In dissolving the fracas, MBIA spokesman Kevin Brown said, “Bank of America will have no further put-back liability to MBIA with respect to the insured Countrywide transactions.” MBIA was originally seeking $4.5 billion from Bank of America.
“We are very pleased to have reached a comprehensive settlement that improves the outlook for MBIA Insurance Corp.,” said Jay Brown CEO of MBIA. “I appreciate Bank of America”™s efforts to arrive at a fair agreement that resolves a number of legacy issues for both institutions as well as the assistance provided by Superintendent Lawsky and the state Department of Financial Services.”
Bank of America”™s statement hewed to the financial equation. The bank said it would record a $1.3 billion pretax charge to its Q1 ledgers, which are to be filed by May 10, and additionally provide the $500 million loan. The bank placed the charges in Q1 saying the basic agreement was already in place by March 31. The bank also will receive “warrants to purchase” 9.94 million MBIA shares at a price of $9.59 per share.
