Bank of America says it has agreed to pay U.S. bond insurance firm MBIA $1.6
billion to settle complex mortgage securities issues.
The dispute has been closely watched by the banking community.
Bank of America and other banks lined up to sue MBIA after the company split
itself in two in 2009, creating a healthy municipal bond insurance company and
another firm that insured complex financial instruments, including commercial
mortgage backed securities.
The banks reasoned that the split was intended to put some of MBIA's resources
out of reach as they tried to collect on claims.
The Wall Street Journal reported Monday that MBIA was also suing Bank of
America, which purchased Countrywide Financial in 2008.
That lawsuit claimed that Countrywide was reckless and fraudulent as a lender.
In the settlement announced Monday, Bank of America agreed to establish a $500
line of credit for MBIA and to accept stock-purchase warrants in MBIA's holding
company.
That would make Bank of America owner of 4.9 percent of MBIA Holding Co.
Shareholders recognized the benefits of the firm, which was struggling
financially, to tie in with Bank of America and its share values jumped 42
percent after the deal was announced.
Bank of America shares also rose, climbing 5 percent, as it put one more legal
dispute having to do with Countrywide Financial behind it.
"It ties the state of these two companies together and gives MBIA an anchor in
one of the big four banks," said attorney Isaac Gradman, who specializes in
mortgage-backed-securities litigation.
