MBIA Inc (MBI)

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Assured, MBIA Credit Swaps Plunge on Bank of America Settlement
Mary Childs and Shannon D. Harrington
BloombergNews.com
Apr 15, 2011


The cost to protect against a default by bond insurers plunged after Assured Guaranty Ltd. (AGO) said Bank of America Corp. (BAC) will pay it $1.1 billion to settle demands that the bank repurchase faulty mortgages.

Credit-default swaps on Hamilton, Bermuda-based Assured dropped 7.6 percentage points to 2.8 percent upfront, according to data provider CMA. That means the cost to protect against a default for five years on $10 million of Assured obligations dropped to $280,000 initially in addition to premium payments of $500,000 a year.

“We have basically resolved virtually all of the controversies between our various companies and Assured,” Bank of America Chief Financial Officer Charles Noski said today in a conference call with investors. The Charlotte, North Carolina- based bank has agreed to pay insurers and investors more than $7 billion to retire mortgage-repurchase claims since Brian T. Moynihan, 51, started as chief executive officer in 2010.

Swaps on Armonk, New York-based MBIA Inc. (MBI) dropped 4.8 percentage points to a mid-price of 35.8 percent upfront, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Contracts protecting Financial Security Assurance Inc. fell 140 basis points to 527.5 basis points, the data show.

Shares of Assured jumped the most since November 2008 and MBIA climbed the most since September 2009 on the news. Assured rose $3.43, or 24 percent, to $17.60 as of 5:53 p.m. in New York Stock Exchange composite trading. Before today, the shares were down 20 percent this year.

MBIA climbed $1.55, or 17 percent, to $10.48. It had been down 26 percent before today.
Corporate Bonds

The cost of protecting corporate bonds from default in the U.S. fell from about the highest this month as higher-than- estimated data on consumer confidence and manufacturing bolstered optimism about the economy.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 0.7 basis point to a mid-price of 94 basis points in New York, according to index administrator Markit Group Ltd.

Manufacturing in the New York region expanded in April at the fastest rate in a year. The Federal Reserve Bank of New York’s general economic index rose to 21.7 from 17.5 in March. Economists projected a reading of 17, based on the median forecast in a Bloomberg News survey. A separate report showed industrial production increased more than forecast in March, led by a rebound in consumer goods manufacturing. Output rose 0.8 percent, the fifth straight gain, the Federal Reserve said.

The credit swaps index typically falls as investor confidence improves and rises as it deteriorates. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

http://www.bloomberg.com/news/2011-04-15/assured-mbia-credit-swaps-plunge-on-bank-of-america-settlement.html?cmpid=yhoo