MBIA, Bank of America reach $1.6 billion cash settlement

Mon May 6, 2013 5:24pm EDT
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By Karen Freifeld and Dan Wilchins

(Reuters) - Bank of America Corp (BAC.N: Quote) has agreed to pay $1.6 billion in cash to MBIA Inc (MBI.N: Quote) and will receive the right to buy a 4.9 percent stake in the bond insurer to resolve long-running litigation, the companies said on Monday.

Bank of America will also remit $137 million worth of MBIA senior debt it acquired in December and provide MBIA with a $500 million credit line as part of the deal.

The accord will settle all of the two companies' disputes, including liability for MBIA as a counterparty in swap deals with Bank of America. Bank of America will take a charge against previously reported first-quarter earnings and its capital ratios will rise under Basel III as a result of the deal.

MBIA shares rose as much as 57 percent on the news. By the close, the shares were up 45 percent, at $14.29, while Bank of America shares closed up 5.2 percent at $12.88.

The settlement marks Bank of America Chief Executive Brian Moynihan's latest step to fix wide-ranging litigation related to the financial crisis and relieves investor fears that MBIA might face liquidation over the bank's claims.

In a statement, MBIA Chief Executive Jay Brown called the deal a "significant milestone" for the company, which is in the process of restructuring itself and risked running out of money within months if it had not settled the Bank of America dispute.

"I think Bank of America was able to put some pressure on and extract some clear leverage from the fact that MBIA looked to be on the brink," said attorney Don Hawthorne, a partner at Axinn, Veltrop & Harkrider who has represented clients in mortgage-backed securities litigation.

"It's probably a good deal all around," he added, reflecting that "MBIA obviously had a strong case and Bank of America had a strong negotiating position."   Continued...

A man walks next to a Bank of America branch in New York October 24, 2012. REUTERS/Eduardo Munoz