MBIA Inc.(MBI) has agreed to pay $68 million in cash to settle the claims made by its investors. The claim settlement by MBIA is the outcome of litigations filed by three investors in 2008 alleging that the company produced false statements and concealed material facts about its exposure to collateralized debt obligations backed by residential mortgage securities.
MBIA has been bleeding hard since the onset of the subprime crisis in 2007. The once-biggest bond insurer with AAA rating was hammered with market share loss as the financial markets slumped in 2007 and its risk of payment defaults increased. Also, the company's liability increased under its structured finance policies, which included mortgage-backed securities. The value of those securities sank as the housing market collapsed, and MBIA stopped writing insurance on them in 2008.
MBIA’s operating weakness is also reflected in its share price, which has fallen to single digits ($7 level) from the $70-levels in the early 2007, just before the blowup of the subprime mortgage crisis.
MBIA’s recent quarter results were also depressing, with the net income at 68 cents per share compared with $6.32 per share in the prior-year quarter, when the company incurred $1.5 billion of unrealized gain on insured credit derivatives.
Similar is the fate of other mortgage insurers as well. In June, MBIA’s peer Ambac Financial Group Inc.(ABK) as well as several of its banking underwriters and insurers agreed to pay a total of $33 million in order to settle claims of investment fraud. The plaintiffs alleged that Ambac gave out misleading information regarding the safety of the bonds it insured in order to inflate the value of the securities and also hid its involvement in the subprime loan disaster, causing heavy losses to investors.
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