UPDATE:MBIA Restructuring Sticking Point For Guarantee Holders
12 Mars 2009 - 9:29PM
Dow Jones News
Financial institutions that see themselves as losers in bond
insurer MBIA Inc.'s (MBI) split into two companies met with the
insurer's regulator Thursday to ask for a redo.
According to people familiar with the matter, the meeting held
in the office of New York State Insurance Superintendent Eric
Dinallo didn't result in a resolution but that talks will continue.
MBIA's chief executive didn't attend.
A spokesman for Dinallo called the meeting "productive."
The issue is Dinallo's approval last month of MBIA's plan to
separate its U.S. municipal-bond insurance business from its
commitments to insure mortgage-backed bonds and other structured
securities. MBIA transferred around $5 billion in capital from its
main insurance company to capitalize the new municipal-only
insurer. That leaves less capital available to pay claims on
structured finance transactions, which has created a growing
backlash.
Barclays Plc (BCS), JPMorgan Chase (JPM), UBS AG (UBS), Bank of
America Corp. (BAC) and Merrill Lynch, which was acquired by Bank
of America in January, are all believed to be part of the 15 that
attended. A spokesman for UBS declined to comment. Spokespeople for
the other banks were unable to immediately confirm whether their
companies were involved in the talks.
Jay Brown, MBIA's chief executive, has pushed the company's
counterparties to negotiate commutations or cancellations of credit
default swaps that the insurer wrote on securities the banks
issued.
"In almost all cases, these are the exact same large financial
institutions that have already received tens of billions in
government money for these exact same losses," Brown said during
the company's fourth-quarter earnings conference call last
month.
MBIA was able to commute four contracts during the fourth
quarter. During MBIA's earnings call earlier this month, the
company's chief financial officer said MBIA didn't inform its
derivatives counterparties during fourth-quarter negotiations of
its plans to restructure.
Adding to the pressure against the split is a lawyer
representing a group of bond owners that filed a class action
lawsuit in New York federal court Wednesday that seeks to reverse
the restructuring. A lead attorney for the suit said he is trying
to persuade derivatives counterparties to join the suit. An MBIA
spokesman said the company intends to defend itself vigorously
against the suit. He added that MBIA's restructuring was approved
by state regulators "after a thorough examination, including an
assessment ... of its ability to meet its obligations to all
policyholders."
MBIA wouldn't comment on Thursday's meeting.
MBIA undertook restructuring in mid-February as part of an
attempt to restart its business of selling financial guarantees on
bonds issued by cities, water authorities and other public-finance
entities. Its main unit was left with fewer claims-paying resources
for its troubled mortgage exposures, and was downgraded by several
credit-ratings firms.
Shares of MBIA traded up 4.3% recently, while shares of rival
Ambac Financial Group (ABK) were up 8.3%.
Ambac also announced a plan to launch a new municipal-only
insurer, called Everspan, which will operate as a subsidiary of its
main insurance business, rather than the separate structure of
MBIA's new insurer.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com
(Matthias Rieker contributed to this report.)