MBIA Said to Pay $350 Million to Settle SocGen Lawsuit

MBIA Inc., the bond insurer that reached a $1.7 billion settlement with Bank of America Corp. this week, will pay $350 million to Societe Generale SA to resolve litigation, a person familiar with the matter said.

The agreement settles claims over the insurer’s 2009 restructuring, which Societe Generale and other banks had sought to reverse, saying it exposed them to losses by transferring assets. Societe Generale is the last bank to settle with MBIA in the case following the accord with Bank of America, and the agreement will end the litigation against the insurer.

MBIA won state regulatory approval in 2009 to move the company’s guarantees on state and municipal bonds out of its MBIA Insurance unit, which backed some of Wall Street’s most toxic mortgage debt. More than a dozen financial institutions then sued claiming they were harmed as holders of financial guarantee policies.

Banks filed complaints against MBIA and the state insurance department. A New York state judge in March dismissed a lawsuit by Bank of America and Societe Generale seeking to reverse the state’s approval of the restructuring.

Regulatory Filing

MBIA announced the Societe Generale settlement in a regulatory filing today without the disclosing the amount.

“As a result of this agreement and the Bank of America settlement announced on May 6, 2013, all litigation brought originally by the group of 18 domestic and international financial institutions, relating to transformation, has been resolved,” MBIA said.

Jim Galvin, a spokesman for Paris-based Societe Generale, didn’t respond to e-mails seeking comment on the settlement. Kevin Brown, a spokesman for Armonk, New York-based MBIA, declined to comment.

“Today is a good day for SocGen and truly a new day for MBIA,” Benjamin Lawsky, the superintendent of New York’s insurance regulator, the Department of Financial Services, said in a statement. “This fair resolution will hopefully help strengthen the municipal bond market, which is critical to our nation’s infrastructure and economic recovery.”

Investment Grade

The new bond insurance unit created by MBIA in the 2009 split, which was intended to jumpstart the company’s municipal debt guarantee business, was raised to investment grade by Standard & Poor’s today after being cut to junk in February.

National Public Finance Guarantee Corp.’s financial-strength rating was lifted three steps to BBB from BB, and the ratings company said it may upgrade the unit again to A pending the resolution of the lawsuit over the split.

The MBIA parent, now rated B-, also was placed on watch for a ratings upgrade by S&P. MBIA rose 7.6 percent to close at $15.48 in New York trading after rising as much as 9.5 percent.

The settlement comes after MBIA and Bank of America reached a settlement that will pay MBIA the equivalent of $1.7 billion and give the bank a 5 percent stake in the bond insurer. The settlement also provides MBIA with a $500 million revolving credit line from Bank of America.

MBIA won’t draw on the loan to pay Societe General, said the person. MBIA Insurance will pay $200 million while $150 million will come from MBIA’s U.K. subsidiary, according to the person.

The cases are ABN Amro Bank NV v. Dinallo, 601846-2009, and ABN Amro v. MBIA, 601475-2009, New York State Supreme Court (Manhattan).

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