MBIA’s Response to Bank of America is Pathetic

MBIA’s Response to Bank of America is Pathetic
By Bank of America (Own work by the original uploader) [Public domain], <a href="https://commons.wikimedia.org/wiki/File%3ABank_of_America_logo.svg">via Wikimedia Commons</a>

MBIA's Response to Bank of America is Pathetic

MBIA has responded to Bank of America’s actions today regarding their Consent Solicitation

Bank of America’s tender offer is nothing more than an outrageous attempt to improperly interfere in MBIA’s corporate affairs in order to pressure us to accept a grossly unfair settlement of our fraud and contract claims against BofA, which would disadvantage other policyholders and all of MBIA Inc.’s stakeholders. Contrary to BofA’s contention in the tender offer, it is not the Consent Solicitation that increases the risk of MBIA Insurance Corp. being placed in rehabilitation or liquidation, rather it is BofA’s own refusal to honor its obligations and its strategy of delaying the put back litigation. This reprehensible conduct is yet another example of the lengths to which BofA will go to evade its obligations to MBIA and reflects the kind of self-serving behavior that precipitated the financial crisis and required hundreds of billions of dollars in taxpayer funded bailouts.

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Why is this a lousy response?

  • Why did MBIA Inc. (NYSE:MBI) attempt to segment the debt of MBIA insurance? They did it so that if there was a liquidity event, they could protect the rest of the company AND as a kicker stick it to Bank of America. This makes their actions on par with Bank of America Corp (NYSE:BAC)’s
  • Regarding “risk of a liquidity event” and who is causing it. I think there is more than enough blame to go around here. MBIA Inc. (NYSE:MBI) went from being essentially an insurer of municipal debt for most of it existence to an entity that decided to insure just about any mortgage loan of any type during the housing bubble. It should be noted many of the same people involved in that are still there today and those insured loans are what continue to threaten the existence of the company. Yes, BAC sold them some steaming piles of horse dung but, as an insurance company, it was MBIA Inc. (NYSE:MBI)’s job to actually know what they were insuring. The point here is that there are plenty of fingers that can be pointed as to “who is to blame”
  • “Delaying put back litigation” … well, isn’t that what their lawyers are supposed to do? Just because you do not like what they are legally doing does not mean it is reprehensible. BAC is not fighting to deny a cancer drug to a patient, this is a squabble between to coporations over restitution over who screwed up the most in the housing bubble.
  • “…self-serving behavior that precipitated the financial crisis and required hundreds of billions of dollars in taxpayer funded bailouts” said the pot to the kettle. Seriously? Is that the best they have? Unless I am mistaken MBIA needed some opportune cash themselves and some rather “lenient” and questionable decisions from the NY State Insurance Commissioners Office to remain a viable entity. This is not the tact they want to take.
  • How is offering to by debt on the open market from bond holders “improperly interfering”  with MBIA’s corporate affairs? BAC is not just issuing a press release to stir thing up, they are offering to make a monetary commitment.

It would have been nice to hear why anything  Bank of America Corp (NYSE:BAC) said about MBI ‘s reason for the Consent Solicitation were wrong. Is Bank of America Corp (NYSE:BAC) buying this debt helping to ensure their CDS portfolio insured by MBIA Insurance is protected or are they blowing smoke in saying so? That is was not even addressed can only mean the statements behind their actions are legitimate.  It is very telling that they attacked the action and not the reasoning behind the action.  This is more akin to a tantrum on a corporate level than a reasoned objection to statements made by Bank of America Corp (NYSE:BAC) today.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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