Saturday, May 30, 2009

MBIA Split Attacked-2

"Three weeks ago, Wells Fargo served a notice that it had failed to receive $5.5m of insurance payments. ... The use of their triple A rated guarantees was the backbone of huge parts of the credit industry such as securitisation and structured finance, their demise is one reason these parts of the financial markets remain dysfunctional. ... In spite of the pressures wrought by the credit crisis on the biggest bond insurers. or monolines, none of them had been forced to cease paying claims. ... The Syncora saga has put the spotlight on just one of the concerns around bond insurers--that of solvency. The solvency concerns around Ambac and MBIA are playing out in different ways. MBIA received regulatory approval to split into two: one business with municipal bonds and one which would have the structured bonds it insured. This, in effect, is seen as a way of protecting municipal holders at the expense of banks and investors who bought insurance on structured finance. ... 'Those seeking to sue MBIA may have an uphill battle on their hands to prove that the rationale behind the transaction was not well founded but rather was irrational, capricious and/or arbitrary,' said Rob Haines, analyst at Credit-Sights, Mr. Haines regards MBIA as a better credit risk than Ambac", Aline van Duyn at the FT, 14 May 2009.

"A group of 18 financial institutions sued MBIA Inc., claiming the bond issuer's decision to split its businesses earlier this year was fraudulent and left one of the units effectively 'insolvent.' The lawsuit, filed in New York state court, was brought by US and foreign banks, including JP Morgan Chase & Co., Bank of America Corp., Morgan Stanley, Canadian Imperial Bank of Commerce, Barclays PLC and UBS AG. ... MBIA in February separated its troubled mortgage exposures from its profitable US municipal-bond insurance portfolio in an attempt to resume writing guarantees on municipal debt. The original MBIA Insurance unit was left with $10 billion in claims-paying resources to back guarantees on about $240 billion in structured-finance securities and non-US bonds, and its rating was downgraded to 'junk' by credit-rating agencies. ... Many of the banks had bought credit derivatives from MBIA that insured them against losses on securities backed by subprime mortgage assets and commerical real-estate loans. ... In mid-March, representatives of about 15 financial institutions complained to New York State Insurance Superintendent Eric Dinallo [ED], who had approved MBIA's split. ... 'Our lawsuit simply seeks to ensure that policy holders receive what they have paid premiums for: contractually guaranteed insurance protection,' said Vince DiBlasi, a lawyer at Sullivan & Cromwell [S&C], who is representing the banks suing MBIA. ... MBIA and insurance regulators have said their internal projections and estimates of future losses indicate the original insurance unit remains solvent", my emphasis, Serena Ng at the WSJ, 14 May 2009.

MBIA's split is an obvious fraudulent conveyance. How can Haines miss this? I agree with the banks here. Let MBIA file bankruptcy. Now. See my 30 April 2009 post, link:

Let's look at some numbers. At 31 December 2008 MBIA had $994 million in book equity, $233 and $554 billion in insurance in force on structured finance products and municipal bonds respectively. I looked at MBIA's financials, PWC, the guys who "audit" AIG and GSG, had no problem with MBIA's numbers for $4.6 million in fees. MBIA's financials are laughable as is PWC's opinion. I wouldn't pay $1.26 billion for MBIA at its current $6.06 per share price. MBIA should be sent to sleep with the fish. I wish the banks, yes the banks, well with their suit. If they win, they may teach ED a badly needed lesson. What did ED know and when did he know it? Well PWC, where do you stand on this, my 13 May 2009 post, link:

These are the end times. S&C, a "New York BigLaw'" is on the right side here! Hey, Vince, I have a pro bono idea for S&C, if S&C is not conflicted out. You have 18 banks. File bankruptcy against AIG and kill it. You may expose why ED let AIG's insurance subs upstream $20 billion to the AIG parent. Of course, if any of your 18 banks were recipients of $120 billion paid to AIG's counterparties, you can't touch this. Aren't you impressed with MBIA's projections? Tell us ED, did you "project" AIG was solvent in September 2008? Will S&C hire its client Moody's as an "expert" to discredit MBIA's projections, my 30 May 2008 post,

1 comment:

Anonymous said...

"MBIA's main regulator, New York Insurance Superintendent Eric Dinallo, has endorsed the plan (to split into two parts). The lawsuit refers to him only as an "obliging" regulator."

Bend over... the regulated need something.

And the back door escape to academia...the modern equivalent... "get the to a convent..."

Yes... it must be the end times... all the wolves and jackals are ripping the flesh from each other... which is fine because they have less time to fleece us...

BK AIG? Why... they get endless liquidity from the Treasury/Fed unless Congress shuts it off.

Actually this was very good news.