BofA (BAC) Pressures MBIA to Avoid Payments... And It's Working
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Price: $6.83 +1.19%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 119.9%
EPS Growth %: +23.5%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 119.9%
EPS Growth %: +23.5%
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MBIA (NYSE: MBI) found itself 19 percent lower Tuesday following Bank of America (NYSE: BAC) making offer to acquire all of MBIA's 5.7 percent bonds due December 2034, in an effort to alter the fate of the insurer and its MBIA Insurance Corp unit.
BofA is looking to buy over $320 million of MBIA bonds to block MBIA from further distancing itself form its ailing subsidiary. The move means BofA is looking to use leverage to force MBIA into what MBIA calls an "unfair" settlement, following the financial fallout in 2009 and after MBIA sued the lender over sales of faulty loans in mortgage-backed securities (MBSs) which forced it out of the municipal insurance business for a time.
BofA would be able to block an amendment which allows creditors to seek payment from the parent company if MBIA Insurance went belly-up, sort of like pushing yourself to the front of the line. BofA believes the amendment -- called a cross-default provision -- would put all policyholder claims in jeopardy if regulators swoop in and seize MBIA Insurance.
Current estimates have BofA holding about $6 billion of credit-default swaps on MBIA Insurance, which would benefit if regulators force the unit to stop paying claims. However, BofA would then want the cross-default provision in place, becuase swap holders would be considered subordinate to policyholders should the insurance unit be seized.
To counter, MBIA will need to buy back bonds or significantly increase its own offer on the debt.
Shares of MBIA have been weak below the $10 level, not helped at all by a November 7th earnings report showing the insure with third-quarter income of 4 cents per share, from $2.26 per share for the same period in the prior year.
In any case, MBIA is rebounding somewhat from the drastic drop on Tuesday, up about 5.9 percent on the session. For more form the original release, click here.
BofA is looking to buy over $320 million of MBIA bonds to block MBIA from further distancing itself form its ailing subsidiary. The move means BofA is looking to use leverage to force MBIA into what MBIA calls an "unfair" settlement, following the financial fallout in 2009 and after MBIA sued the lender over sales of faulty loans in mortgage-backed securities (MBSs) which forced it out of the municipal insurance business for a time.
BofA would be able to block an amendment which allows creditors to seek payment from the parent company if MBIA Insurance went belly-up, sort of like pushing yourself to the front of the line. BofA believes the amendment -- called a cross-default provision -- would put all policyholder claims in jeopardy if regulators swoop in and seize MBIA Insurance.
Current estimates have BofA holding about $6 billion of credit-default swaps on MBIA Insurance, which would benefit if regulators force the unit to stop paying claims. However, BofA would then want the cross-default provision in place, becuase swap holders would be considered subordinate to policyholders should the insurance unit be seized.
To counter, MBIA will need to buy back bonds or significantly increase its own offer on the debt.
Shares of MBIA have been weak below the $10 level, not helped at all by a November 7th earnings report showing the insure with third-quarter income of 4 cents per share, from $2.26 per share for the same period in the prior year.
In any case, MBIA is rebounding somewhat from the drastic drop on Tuesday, up about 5.9 percent on the session. For more form the original release, click here.
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