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MBIA story updated with changes throughout.



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's chief regulator on Thursday criticized the cash-strapped company's decision to pay out $11.4 million in cash to four top executives.

"These bonuses are unwarranted and ill-advised. That MBIA in its currentcircumstances would pay big bonuses raises real questions as to theindependence of MBIA's board and the judgment of MBIA's management," said David Neustadt, spokesman for the New York Department of Financial Services.

MBIA's bonuses are paid out at the parent company level, which isn't technically regulated by the NYDFS. Still, MBIA scrapped planned 2011 bonuses for several executives after discussions with the NYDFS, according to a March 19 proxy filing.

MBIA spokesman Kevin Brown declined to respond to the NYDFS comment, though when questioned about the bonus payments in an earlier exchange he wrote in an email that the payouts to the executives were approved by the board "in order to retain their services and assure continuity in the company's leadership during this critically important time in its transformation."

On Wednesday, more than 89 minutes after the close of trading and just 23 seconds ahead of the end-of-day deadline in this holiday-shortened week, a regulatory filing by MBIA alerted the handful of people paying attention at that hour that its board had approved $11.4 million in cash "retention" awards to four of its top executives.

Edward Chaplin, the CFO and William Fallon, the President and COO, will each get $3.5 million, while Anthony McKiernan, the chief portfolio officer, will get $2 million and Ram Wertheim, the chief legal officer, will receive $2.4 million.

The executives will also split 2 million shares between them, with 600,000 each for Chaplin and Fallon and 400,000 each for McKiernan and Wertheim. These are subject to a fairly complex vesting formula, but if MBIA shares trade at $25 by the end of 2015 and tread water for the next two years, they would get the entire 2 million shares, which would be worth $50 million.

While $25 seems like a long way from the $7.95 closing price for MBIA shares on Tuesday, it is consistent with the bullish thesis for the shares put forward by at least three sell-side analysts who follow the company.

That thesis has MBIA winning a roughly $2-3 billion settlement from

Bank of America

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, with which it is engaged in a complex and bruising legal battle over subprime mortgage bonds. The bulls also believe MBIA will be able to continue operating its municipal bond insurance business, while retaining a subprime mortgage bond insurance business that could appreciate substantially if the housing market continues its recovery.

Twenty-five dollars per share also doesn't seem like such a stretch if you consider that MBIA's adjusted book value at the end of the third quarter was $30.64. While that measure does not adhere to generally accepted accounting principles, it assumes no new business activity, according to the insurer's latest quarterly filing.

Twenty five dollars per share does seem like a stretch, however, if you consider that MBIA's subprime unit had $534 million in cash at the end of the second quarter, and $386 million at the end of the third quarter. Research firm Creditsights argues the unit is on track run out of cash by the second quarter of 2013.

The bonuses, however, will come from MBIA's parent company, which also spent roughly $170 million during the quarter to buy back some of its bonds. The parent has $298 million in cash and cash equivalents at the end of the third quarter, down from $473 million at the end of 2011.

The cash crunch won't matter if MBIA reaches the settlement with Bank of America that bulls are anticipating beforehand, but if it doesn't, the MBIA executives still make a cool $11.4 million.

In other words, the MBIA executives get $11.4 million if things go badly and $61.4 million if they work out. There doesn't appear to be much in between.

BTIG analyst Mark Palmer (one of the bullish analysts I referred to) doesn't see anything inappropriate going on.

"The amounts in question are modest relative to typical executive compensation packages, and the four executives are among the handful of key players for the company as it manages its way through the litigation period and beyond," he wrote me via email Wednesday night before the NYDFS weighed in.

The statement by the NYDFS is just the latest example that its chief, New York Financial Services Superintendent Benjamin Lawsky, is willing to be aggressive in going after companies he regulates. A

case he brought against Standard Chartered Bank in August

drew anonymous sniping from other regulators who claimed he was too hasty. Standard Chartered agreed to settle that case with NYDFS for $340 million and with other regulators for $330 million for a total of $670 million.


Written by Dan Freed in New York


Follow @dan_freed

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