Courtesy of Benzinga.
Bank of America Corporation (NYSE: BAC) today announced a comprehensive settlement with MBIA Inc. (NYSE: MBI) to resolve all outstanding representations and warranties claims and all other claims between the parties. The agreement requires certain approvals of the New York State Department of Financial Services, which are expected to be received shortly, at which point the parties will execute the agreements and promptly close all contemplated transactions described below.
As part of the settlement, Bank of America will pay MBIA approximately $1.6 billion in cash and remit to MBIA all of the outstanding MBIA 5.70% Senior Notes due 2034 that Bank of America acquired through a tender offer in December 2012. In addition, Bank of America will terminate all of its outstanding credit default swap (CDS) protection agreements purchased from MBIA on commercial mortgage-backed securities (CMBS), as well as terminate certain other trades in order to close out positions between the companies.
MBIA will issue to Bank of America warrants to purchase 9.94 million shares of MBIA common stock, or approximately 4.9% of its currently outstanding shares, at an exercise price of $9.59 per share. The warrants may be exercised at any time prior to May 2018. Also, Bank of America will provide a senior secured $500 million credit facility to MBIA Insurance Corp.
Bank of America will record $1.6 billion in additional pretax charges in the first quarter of 2013, of which $1.3 billion is related to the settlement and the remainder is related to other monolines. The after-tax effect of the additional charges will reduce the company’s first-quarter 2013 net income to $1.5 billion, or $0.10 per diluted common share, from the $2.6 billion, or $0.20 per diluted common share reported on April 17, 2013. As the settlement occurred prior to filing the company’s Quarterly Report on Form 10-Q for the period ended March 31, 2013, generally accepted accounting principles require Bank of America to apply the additional charges to the financial results for the quarter ended March 31, 2013.
The effect of these actions is expected to increase the company’s estimated Tier 1 common capital ratio under Basel 3 as of March 31, 2013 by 10 basis points to 9.52%^1, reflecting the reduction in risk-weighted assets associated with the terminated CDS contracts, partially offset by the additional litigation expense. In addition, the company’s tangible book value per common share^2 at March 31, 2013 is $13.36 per share, $0.10 per share less than reported on April 17, 2013.
These charges will be reflected in Bank of America’s financial statements to be included in the company’s First Quarter 2013 Report on Form 10-Q, which will be filed with the Securities and Exchange Commission on or prior to May 10, 2013.
