Ruling augurs well for MBIA in fight against Bank of America


One of the bigger legal risks hanging over Bank of America right now is it acrimonious legal battle with monoline insurer MBIA, which has a lot riding on the outcome as well. For clues as to the outcome over this battle, check out the recent decision in the Assured Guaranty vs. Flagstar Bancorp battle.

Assured Guaranty charged in a suit that Flagstar Bancorp packaged rotten mortgages into securities, mortgages that were riven with improprieties, misrepresentations and breached warranties. Had the insurer known that the securities were of such shoddy quality, the company said it would never have issued mortgage insurance.

U.S. District Judge Jed S. Rakoff apparently agreed this week, handing Assured Guaranty a big $90 million victory over the bank. Assured Guaranty's stock soared on the news, which, interestingly enough, also led to a big rally in MBIA shares. The conventional wisdom is that the big win augurs well for MBIA in its battle with Bank of America, which is being waged over similar representation and warranty issues. suggests that the ruling "may give the company the upper hand" in its fight with Bank of America, saying it "might set a precedent." For all the rancor, this case has generated, the most likely outcome is still some sort of settlement.

It may be that this ruling prods the bank to move farther in that direction.   

For more:
- here's the Dow Jones article on Assured Guaranty
- here's the article from

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Losers in the Bank of America, MBIA bond battle