MBIA Reportedly Ready to Settle with UBS Over Restructuring

By Karen Freifeld | March 16, 2012

UBS AG has agreed to settle litigation against MBIA Inc. that challenged the bond insurer’s 2009 restructuring, people familiar with the matter said on Thursday.

The UBS settlement calls for credit-default swaps to be commuted in exchange for a cash payment, the people said. The amount of the cash payment was not immediately clear.

UBS and MBIA representatives declined comment. The people familiar with the matter declined to be identified because the settlement has not been confirmed publicly.

UBS, based in Zurich, is the latest bank to agree to give up legal claims against the Armonk, New York-based bond insurer. Fourteen other banks have settled, while three are still challenging the insurer’s split.

UBS revealed in its annual report on Thursday that it had agreed to a settlement in principle with a monoline insurer and described some of its terms. That filing did not identify MBIA by name.

The bank said it reduced its net trading income for 2011 by 167 million Swiss francs ($180 million) after agreeing to commute certain credit-default swap contracts in exchange for the net cash payment.

UBS has not yet filed legal documents in New York state Supreme Court withdrawing from the litigation.

The banks sued MBIA in 2009, claiming the insurer’s restructuring was intended to defraud policyholders. They said the restructuring left MBIA undercapitalized and possibly unable to pay their claims.

The split divided MBIA’s municipal bond business from its structured finance operations, which suffered big losses from insuring mortgage debt

The banks also sued New York’s then-superintendent of insurance, Eric Dinallo, who had approved MBIA’s 2009 split.

Other banks that had been party to the lawsuits and which settled include Morgan Stanley, Royal Bank of Scotland Group Plc and Wells Fargo & Co. Bank of America Corp., Natixis SA and Societe Generale are still pursuing claims against MBIA.

Benjamin Lawsky, Superintendent of New York’s Department of Financial Services, was involved in brokering the UBS deal, according to another person familiar with the matter.

A spokesman for the Department of Financial Services declined comment. Lawsky has said his agency was working with the banks and MBIA to seek resolutions.

Robert Giuffra, lead counsel for the banks still suing MBIA, did not return a call for comment.

The cases are ABN Amro Bank NV, et al, v Eric Dinallo 601846/2009 and ABN Amro Bank NV et al v. MBIA Inc., 601475/2009, both in New York state Supreme Court.

 

 

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