New York State approved an agreement between bond insurer MBIA Inc. and Nomura Holdings Inc. that ended claims related to mortgage-backed securities, a person with knowledge with the matter said.
MBIA will pay Nomura $325 million to resolve the largest remaining pool the bond insurer had tied to those securities, according to the person, who asked not to be identified because the settlement is private. Armonk, N.Y.-based MBIA may also pay Nomura $83 million depending on other outstanding legal matters under the arrangement approved today by New York Department of Financial Services Superintendent Benjamin Lawsky, the person said.
Jonathan Hodgkinson, a spokesman for Tokyo-based Nomura, Ronald Klug, a spokesman for the Department of Financial Services, and MBIA’s Kevin Brown declined to comment. Dow Jones reported earlier that MBIA and Nomura were close to a settlement.
"Defusing $3 billion of exposure is a huge step forward for MBIA in its effort to de-risk its structured product insurance unit," said Mark Palmer, an analyst at BTIG LLC, which may provide investment-banking services to MBIA.
MBIA Insurance Corp., the unit that backed some of Wall Street’s most toxic debt, commuted policies insuring about $3 billion of "potentially highly volatile" commercial mortgage-backed securities originally rated A, according to a company filing today with the Securities and Exchange Commission. The cost, which was more than the company had reserved for in the third quarter, will be reflected in its fourth-quarter results, which will be released Feb. 27.
The unit has about $760 million of CMBS exposure left with debt originally rated BBB, according to the filing. MBIA expects $391 million of that to generate losses in the "next few years," the company said in the filing.
Shares of MBIA jumped 5.4% to $12.67 today, the biggest one-day move since Nov. 13. That’s up from the lowest closing price in the past 12 months of $9.08 on May 2, before a settlement with Bank of America Corp.
MBIA expanded from its core business of insuring municipal bonds into guarantees on instruments including collateralized debt obligations and mortgage-backed securities. When prices on commercial and residential properties and securities started to fall, the turmoil sparked the worst recession since the Great Depression, and losses for MBIA in 2008 cost it its AAA credit ratings.
The company split itself in two in 2009, carving off its municipal insurance business from the structured-product unit that backed the most toxic debt. MBIA has been seeking to restart business at its muni insurer National Public Finance Guarantee Corp. while settling claims and litigation in the MBIA Insurance unit.
"National is in very good shape in terms of the infrastructure, really meaning the people, as we get to the point where we’re writing business again," Bill Fallon, MBIA’s chief operating officer, said in a Nov. 13 conference call with analysts and investors.