NEW YORK (Reuters) - Challenges by Bank of America Corp (BAC.N) and Societe Generale (SOGN.PA) to the 2009 restructuring of bond insurer MBIA (MBI.N) represent the ultimate in “chutzpah,” an attorney for MBIA said on Thursday.
Attorney Marc Kasowitz repeatedly used the Yiddish word for audacity to describe the banks’ arguments for overturning the restructuring.
“The transformation was thoughtfully conceived as a necessary and important response to the financial crisis,” Kasowitz said. “There’s no basis whatsoever for the court to disturb the judgment of the superintendent.”
Kasowitz was making an opening statement for MBIA in state court in New York in a proceeding challenging the state insurance department’s decision to approve the restructuring.
Bank of America and Societe Generale claim that, as MBIA policyholders, they were harmed when MBIA split its troubled mortgage-debt insurance business from its traditional municipal-bond insurance business. Some $5 billion was moved to the municipal-bond unit instead of being used to pay policyholders, the banks have said.
Kasowitz said MBIA’s reorganization was approved to protect all policyholders, including the banks, and to help unfreeze the public-finance markets.
Last week, the banks’ lawyers argued the approval was based on inaccurate and misleading information.
Kasowitz called it “a new definition of chutzpah” for Bank of America to claim that weeks of on-site review by the state insurance department was rushed, when the bank received a federal bailout in a matter of days to see it through the financial crisis.
He also used the same word for the banks to claim the restructuring was done in secret.
“This is really sort of more than chutzpah,” Kasowitz said, arguing the banks knew about the proposed transformation a year before it was approved — and supported the idea.
New York state Supreme Court Justice Barbara Kapnick in Manhattan is overseeing the proceeding and must decide whether the restructuring should stand.
The banks will have an opportunity to rebut MBIA and the insurance department’s arguments next week.
David Holgado, representing the state insurance department, argued earlier this week that the judge must decide only that the regulator’s decision was rational, not that it was right.
Eighteen banks, including ABN Amro, sued MBIA and the insurance department in 2009 over the reorganization. All but Bank of America and Societe Generale have since settled.
The case is ABN Amro Bank NV et al v. Dinallo, New York State Supreme Court, New York County, No. 601846/2009.
Editing by Steve Orlofsky