MBIA (MBI) Needs to Settle MBS Litigation Fast with Cash at Critical Levels

March 20, 2013 11:38 AM EDT
MBIA, Inc. (NYSE: MBI) is running on (nearly) borrowed time right now, as it continues to fight against financial rivals to recover some funds from bad from insurance policies on mortgage backed securities.

The NY Post estimates today that MBIA, an insurer of bonds and mortgage-backed securities (MBSs), has about four months of cash left on the books. CEO Jay Brown is not only pushing the firm to cut deals with former clients at big banks, but he's also seeking to recoup losses MBIA incurred after other institutions "duped" the firm.

MBIA sees collecting about $3.6 billion in post-financial-crisis claims against such names as Bank of America (NYSE: BAC), Credit Suisse (NYSE: CS), and Ally's ResCap.

Recently, MBIA received a positive verdict on which BofA and Soc Gen aimed to overturn a 2009 restructuring plan approved by New York state. The plan allowed MBIA to split into two different entities. On one side was a "good" business which dealt mainly with municipal bonds. The other side housed the "bad" business, which working with MBSs and other financial products.

MBIA's bank clients were enraged by the split, saying that it was a way for MBIA to avoid paying out on MBS claims.

MBIA and BofA's subprime unit Countrywide unit are in litigation over MBSs insured by MBIA ahead of the 2008 financial meltdown. MBIA is seeking up to $3.6 billion from Countrywide.

Though talks have been ongoing, the Post believes that MBIA and BofA are far apart in coming to terms. BofA would rather settle for around $1 billion rather than the amount sought by MBIA.

On its quarterly call, MBIA president Chuck Chaplin said there was substantial doubt of MBIA's MBIA Insurance maintaining status as a going concern and believed a settlement with BofA is the most likely outcome before regulatory intervention. Should MBIA run out of cash before any deal is reached, the New York State Department of Financial Services would likely come in and seize the "bad" unit of MBIA, including MBIA Insurance.

Shares of MBIA are 0.7 percent lower Wednesday.

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