Bloomberg News

MBIA Misled N.Y. Regulator on Restructuring, Banks Say

April 09, 2012

MBIA Inc. (MBI:US) misled the New York insurance regulator and concealed information about its financial condition when it sought approval for its 2009 restructuring, banks suing the company said.

MBIA didn’t tell the New York Insurance Department about a 2008 Lehman Brothers Holdings Inc. study paid for by MBIA that analyzed expected losses tied to mortgage debt and indicated MBIA Insurance Corp. was insolvent, the plaintiffs said in court papers dated March 16 and filed today.

The financial institutions challenging the restructuring said that by concealing the study, MBIA misled state officials who went on to approve the insurer’s split. The approval allowed the company to move its guarantees on state and municipal bonds out of the unit that insured some of Wall Street’s riskiest mortgage debt.

“The information MBIA provided to the NYID was riddled with misinformation and half-truths,” the banks said. The filing was made by Bank of America Corp. (BAC:US), Natixis (KN), and Societe Generale SA. (GLE)

MBIA and Eric Dinallo, the state insurance superintendent at the time, were sued over the restructuring by institutions that bought financial guarantee policies issued by MBIA Insurance. They said the split left MBIA Insurance insolvent and harmed policyholders. Many of the plaintiffs have withdrawn from the litigation.

‘Contrary’ to Facts

Kevin Brown, a spokesman for Armonk, New York-based MBIA, said in an e-mailed statement that the banks’ allegations “are contrary to the facts” and that the state’s approval “was proper in all respects.”

“The New York State Insurance Department was given unfettered access to MBIA’s books, records and personnel and conducted a thorough, independent and comprehensive investigation, prior to approving MBIA’s transformation,” he said.

David Neustadt, a spokesman for the New York Department of Financial Services, declined to comment. The department combines the former state banking and insurance departments.

The case is ABN Amro Bank v. Dinallo, 601846-2009, New York State Supreme Court (Manhattan).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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Companies Mentioned

  • MBI
    (MBIA Inc)
    • $9.6 USD
    • 0.32
    • 3.33%
  • BAC
    (Bank of America Corp)
    • $16.6 USD
    • 0.34
    • 2.05%
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