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Bank of America: Mortgage Overhang Removal Winner

Stocks in this article: BAC JPM MBI

The settlement is subject to the approval of the New York State Department of Financial Services, which the companies said was "expected to be received shortly."

"We are very pleased to have reached a comprehensive settlement agreement with Bank of America that improves the outlook for MBIA Insurance Corp. and sets the stage for MBIA subsidiary National Public Finance Guarantee Corp. to reclaim its leadership position in the U.S. public finance insurance market," said MBIA CEO Jay Brown ion his firm's press release.

"I appreciate Bank of America's efforts to arrive at a fair agreement that resolves a number of legacy issues for both institutions as well as the assistance provided by Superintendent Lawsky and the New York State Department of Financial Services," Brown said.

Investors are counting on the Bank of America deal to end MIBA's liquidity problems. The bond insurer's shares spiked 45% on Monday, to close at $14.29. This puts Bank of America "in the money" on its warrants, by $4.70 per MBIA share, or approximately $46.7 million.

Rafferty Capital Markets analyst Richard Bove said in an email that "the outlines of the settlement are significantly better than I expected. It had been my assumption that this lawsuit would cost Bank of America 2 billion dollars. It is considerably less than that".


Pressure on James Dimon

It has been widely reported that in the wake of last year's "London Whale" trading debacle and loss in its Chief Investment Office (CIO) of at least $6.2 billion, that bank regulators, including the Office of the Comptroller of the Currency and the Federal Reserve, have expressed distrust in the management team of JPMorgan Chase (JPM).

At JPMorgan's annual meeting on May 21, investors will vote on whether or not to separate the bank's chairman and CEO roles. This move is supported by ISS Proxy Advisory Services, which last Wednesday said it was "supporting the shareholder proposal requesting an independent chair given the governance failure in connection with the CIO incident, the size and complexity of JPM's business, and the continued challenges faced by the company."

Rafferty Capital Markets analyst Richard Bove on Monday made a strong case for allowing Dimon to keep both the CEO and chairman titles. Bove wrote in a note to clients that "Jamie Dimon joined the executive team of JPMorgan Chase in 2005. In that year, JPMorgan earned $8.5 billion. In 2012, the company earned $21.7 billion. The pretax, pre-provision results per share went from $4.41 to $8.62 or a gain of 95.5%." Bove added that "from the end of 2005 to last Friday, the stock price has risen by 19.9%. In this same period the Keefe Bruyette banking Index has fallen by 39.5%. JPMorgan has outperformed its peers by approximately 60% over this timeframe."


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