The Appellate Division of the New York State Supreme Court yesterday reversed a lower court ruling and granted MBIA's motion to dismiss a suit brought against it by a group of banks that had sought to block the transformation of the Armonk NY financial insurance company.
The banks had alleged a restructuring--approved by New York state insurance department in 2009--transferred some $5 billion out of MBIA's primary operating unit and into an entity now known as National Public Finance Guarantee Corp. That money transfer, said the banks, amounted to a "fraudulent conveyance" and left MBIA potentially unable to cover losses incurred by holders of MBIA financial guarantee insurance policies.
Both banks and credit unions may be holders of such policies. However, plaintiffs did not include any credit unions.
In dismissing the case, Justice Helen Freedman, writing for the majority, noted that the plaintiffs "did not allege that the company failed to pay them on any outstanding claims, or even that they have suffered any other monetary damages."
While some worry this ruling may eventually result in greater losses for credit unions--especially corporate credit unions in regard to their holdings in mortgage backed securities--there is uncertainty on that score. CUNA spokesperson Pat Keefe said, "The impact [of the ruling] is unclear as of this time."
John McKechnie, NCUA public affairs director, added: "NCUA is not a party in the MBIA litigation. We are studying the ruling to determine what effect, if any, it may have on securities previously owned by corporate credit unions that have been placed in liquidation. Beyond that NCUA is not speculating."
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