Legal action as fears raised over bond insurers’ ability to pay
A group of 18 banks, including the UK’s Barclays and HSBC, are suing in the New York Supreme Court claiming the decision to split bond insurer MBIA in two cuts its ability to pay shareholders, the FT reports.
It is the second legal challenge to MBIA’s restructuring since the insurer received regulatory approval in February to split into one business holding safe guarantees of municipal bonds and one with the insurance for poor structured bonds backed by mortgages and other assets.
Fears over credit insurers
Separately, the FT reported that credit insurers are using other methods not to pay out.
Three weeks ago, Wells Fargo filed a notice that it had failed to receive $5.5m of insurance payments from XL Capital Assurance, now called Syncora, when payments were stopped on the orders of the New York insurance regulator. The bond insurer may be taken over by regulators if it cannot restructure by the end of the month.
A British subsidiary of Ambac filed court papers seeking $1bn in damages from JPMorgan Investment Management. As the investment manager for $1.65bn of assets in the name of Ballantyne, Ambac said JPMorgan placed the assets in “inappropriate securities”, including risky mortgage-backed securities.
MBIA recently sued Merrill Lynch, now owned by Bank of America, to avoid pay-outs on $5.7bn of collateralised debt obligations (CDOs) linked to mortgages.
The FT reported: “Using the lawsuits as an attempt not to pay claims is weakening the value of insurance generally,” said Arturo Cifuentes, a principal at Atacama Partners, an advisory firm based in New York. “It is a recent development, and one that increases the risks around the value of insurance. It is not just about solvency anymore.”
