In the reps and warranties case including MBIA and Bank of America, a judge has increased the chances for a settlement by ruling that Bank of America CEO Brian Moynihan must testify. I think it is in both companies interest to settle this case as MBIA needs the cash flow, and Bank of America needs to move forward as they have been. These are legacy issues mainly caused by the horrendous acquisition of Countrywide so by no means whatsoever should Moynihan be held responsible, but I highly doubt that they want to keep this case moving forward if he is going to have to testify. Bank of America already settled with Assured Guaranty so I’m not positive why they are fighting MBIA so hard, except perhaps if they wanted to buy time to build up their capital which they have indeed done. At T&T Capital Management we are long Bank of America, we have sold puts on MBIA, and we are long MBIA bonds. Bank of America has sizeable reserves for mortgage buybacks so it will be interesting to see if they are adequately reserved for their likely loss in this case because if they are that would remove a huge negative from the equation.
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