This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bank of America Wins a Battle, But MBIA Can Win the War: Street Whispers

NEW YORK ( TheStreet) -- MBIA (MBI - Get Report) shares lost more than 19% Tuesday as investors decided Bank of America (BAC - Get Report) gained the upper hand in a complex legal battle between the two companies, but it's too early to write off MBIA just yet.

MBIA wants to tear up contracts it wrote agreeing to insure some $6 billion worth of mortgage bonds Bank of America's Countrywide unit sold in the years leading up to the 2008 subprime mortgage crisis. MBIA argued the bonds didn't live up to the terms of the insurance contract because the mortgages weren't what Countrywide claimed they were at the time MBIA agreed to insure them.

Bank of America has countered MBIA by challenging its move to split off its municipal insurance unit from the entity that insured MBS. Analysts have been expecting Bank of America to pay some $2 billion to settle the case in exchange for dropping its lawsuit challenging MBIA's separation.

MBIA claims Bank of America has been trying to run out the clock on the insurer, which has just $386 million in cash in its structured products unit--where the obligation to Bank of America lies. If that business runs out of cash, it won't be able to continue its challenge to Bank of America's mortgages.

Last week, MBIA asked its bondholders to agree to amend their bonds to prevent a potential acceleration of debt obligations from the parent company should insurance regulators deem it necessary.

Perhaps sensing some admission of weakness by MBIA in its preparation for such an outcome, investors sold MBIA shares following MBIA's request to its bondholders. In the three days following MBIA's request to amend the bonds, shares fell 8.6%.

That steady selloff turned into a rout on Tuesday, after Bank of America announced an offer to buy the MBIA bonds at a 22% premium to where they were trading ahead of the offer, according to Bloomberg.

Assuming Bank of America convinces a majority of the bondholders to accept its offer, the bank would succeed in blocking MBIA's bid to protect itself against the potential acceleration of debt obligations by the parent.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $16.35 -0.55%
MBI $8.65 -1.03%
AAPL $125.80 -2.25%
FB $77.56 -1.59%
GOOG $530.80 -1.85%

Markets

DOW 17,928.20 -142.20 -0.79%
S&P 500 2,089.46 -25.03 -1.18%
NASDAQ 4,939.3270 -77.6020 -1.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs