Bank of America Corp. and Societe Generale SA (GLE) appealed a judge’s decision upholding regulatory approval of bond insurer MBIA Inc. (MBI)’s 2009 restructuring, which they say harmed them as policyholders.
New York Supreme Court Justice Barbara Kapnick was wrong when she dismissed a lawsuit by the banks seeking to reverse approval by the state’s insurance regulator, they said in a court papers filed yesterday.
The trial court erred in not annulling the approval because it “was arbitrary and capricious and an abuse of discretion,” they said.
In 2009, New York Insurance Department Superintendent Eric Dinallo approved the split, allowing MBIA to move the company’s guarantees on state and municipal bonds out of its MBIA Insurance Corp. unit, which guaranteed some of Wall Street’s most toxic mortgage debt.
The banks said during a month of oral arguments last year that the approval was based on inaccurate and incomplete information provided by Armonk, New York-based MBIA. They say the split exposed them to losses as holders of financial- guaranty policies by siphoning more than $5 billion in assets from MBIA Insurance.
In a March 4 decision, Kapnick dismissed the banks’ lawsuit, which was brought under New York law allowing court challenges to state agency decisions.
Kevin Brown, an MBIA spokesman, declined to comment on the appeal. A spokesman for the New York Department of Financial Services, which combines the functions of the state’s banking and insurance regulators, didn’t immediately respond to an e- mail yesterday seeking comment on it.
The case is ABN Amro Bank NV v. Dinallo, 601846-2009, New York State Supreme Court, New York County (Manhattan).