Bank of America Corp. (BAC) on Monday agreed to pay MBIA Inc. (MBI) $1.7 billion to settle a five-year legal battle over soured home-loan mortgages. Shares of MBIA surged in evening trade and closed up 45 percent following the news.
As part of the deal, MBIA will receive a payment of about of $1.6 billion in cash and $137 million of MBIA's senior notes due 2034. In addition, Bank of America will also provide MBIA with a credit line of $500 million. Bank of America will get warrants to acquire about 5 percent stake in the bond insurer.
Jay Brown, MBIA chief executive officer, said, "While work remains to be done, today's announcement represents a significant milestone in MBIA's Transformation for the future and toward our goal of resuming growth in shareholder value."
As part of the settlement, MBIA will withdraw the lawsuit that commenced in September 2008 against Countrywide Home Loans Inc., a unit of Bank of America, relating to the bad mortgage loans guaranteed by MBIA, which were sponsored by Countrywide. Meanwhile, Bank of America will also drop an ongoing litigation related to MBIA's 2009 restructuring.
Bank of America and MBIA have also agreed to the commutation of all of the MBIA policies held by Bank of America, which have a notional insured amount of about $7.4 billion.
Bank of America said it will record additional pre-tax charges of $1.6 billion for the first quarter ended March 31, 2013. As the settlement was reached before filing of Form 10-Q, generally accepted accounting principles require Bank of America to apply the additional charges to the first-quarter results.
Including the after-tax effects of additional charges, first-quarter profit will be $1.5 billion or $0.10 per share, down from the $2.6 billion or $0.20 per share reported on April 17.
MBI closed Monday's trading at $14.29, up $4.46 or 45.37%, on the NYSE. The stock further gained $0.07 or 0.49% in after hours.
BAC closed Monday's trading at $12.88, up $0.64 or 5.23%, on the NYSE. The stock gained $0.01 or 0.08% in after hours.
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