This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bank of America Confirms MBIA Deal (Update 1)

Stocks in this article: BAC MBI

MBIA story updated with changes throughout.

NEW YORK ( TheStreet) -- Bank of America (BAC) has settled longstanding litigation with MBIA (MBI) as it agreed to pay $1.6 billion to the insurer and take a 4.9% stake in MBIA.

The settlement, news of which leaked mid-Monday before it was finally confirmed shortly before the close of trading, sent MBIA shares up by more than 45% , while also giving a boost to Bank America's share price. Bank of America shares rose 5.23% to close at $12.88.

In addition to the $1.6 billion payment and the 4.9% stake, Bank of America will remit to MBIA bonds it purchased through a tender offer that mature in 2034. The bank will also terminate other trades between the two institutions, including credit default swaps it bought from MBIA on commercial mortgage-backed securities (CMBS). Bank of America will also provide MBIA with a $500 million credit line.

Bank of America's stake came at a strike price of $9.59 per share, providing the bank with an immediate windfall since MBIA shares closed at $14.29, up more than 45% on the day. This puts Bank of America "in the money" on the warrants, by $4.70 per MBIA share, or approximately $46.7 million.

The deal proved critical for MBIA, which had been draining much of its cash as it fought Bank of America in the courts. Also as part of the litigation, Bank of America had challenged a restructuring of MBIA intended to separate its municipal bond insurance business from its securitized products division. The securitized products division insured mortgage backed securities that lost most of their value during the subprime housing bust, and so faced billions of dollars in potential claims. MBIA hopes that by protecting the muni bond insurance business from the securitized products business it can once again begin writing municipal bond insurance, a business that remains attractive. Bank of America has dropped the lawsuit challenging the restructuring.

Bank of America has notched some big wins on the legal front over the past week, with several objectors to a key $8.5 billion mortgage settlement dropping out. As with the $8.5 billion settlement, the legal battle with MBIA involves disputed mortgage backed securities (MBS) that bundled home loans extended by Countrywide Financial. Bank of America acquired Countrywide in an ill-fated deal in 2008, and has already paid out or set aside some $30 billion to cover liability for MBS tied to Countrywide.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs