A lawyer for MBIA Inc. (MBI:US) finished his opening statement in a trial over the bond insurer’s 2009 restructuring after two days, saying the transaction was properly approved by New York state regulators.
The restructuring protected all policyholders, including the banks opposed to it, and they can’t prove that the approval was “arbitrary and capricious” and based on a flawed analysis by a single department employee, Marc Kasowitz, the MBIA attorney, said in New York Supreme Court in Manhattan.
“The department vigorously and throughly analyzed the proposal,” Kasowitz said today. “This was not a situation of the department blindly accepting the work that MBIA had done.”
Justice Barbara Kapnick of state Supreme Court is hearing a nonjury trial on claims by Bank of America Corp. (BAC:US) and Societe Generale SA (GLE) that the February 2009 approval of MBIA’s proposal by then-Superintendent Eric Dinallo was based on inaccurate and incomplete information and should be annulled.
More than a dozen financial institutions sued Armonk, New York-based MBIA and the state insurance department in 2009 over the restructuring. Bank of America, based in Charlotte, North Carolina, and Paris-based Societe Generale are the only banks left in the litigation after JPMorgan Chase & Co. (JPM:US), Morgan Stanley, UBS AG and other banks dropped out.
The summation from Kasowitz, an attorney with Kasowitz Benson Torres & Friedman LLP, followed arguments from the banks and the state. The banks claim the restructuring exposed them to losses as policyholders by transferring $5 billion in assets out of an MBIA unit that insured risky mortgage debt into a new division that guaranteed municipal bonds.
David Holgado, a lawyer in state Attorney General Eric Schneiderman’s office, last week asked Kapnick to dismiss the banks’ challenge, saying the approval was rational and based on an “extraordinary” analysis by the former Insurance Department official, Jack Buchmiller.
Kasowitz said today that Buchmiller’s work was “comprehensive, exhaustive, and intensive” and based on a “deep dive” analysis of investments insured by MBIA, including commercial and residential mortgage-backed securities.
“Mr. Buchmiller took a rational, realistic and clear eyed view to the work that was done,” Kasowitz said. “He wasn’t closing his eyes to anything.”
Proceedings in the case are scheduled to resume on May 31, when Robert Giuffra, a lawyer with Sullivan & Cromwell LLP who is representing the banks, is set to respond to the presentations given by attorneys for the state and MBIA. The trial is scheduled to last two to four weeks.
The case is ABN Amro Bank v. Dinallo, 601846-2009, New York State Supreme Court (Manhattan).
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