Bank of America Corporation BAC today announced a comprehensive settlement with
MBIA Inc. 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.
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