November 29, 2011 / 6:09 AM / in 7 years

Banks, MBIA in talks to settle legal dispute: report

(Reuters) - Several big banks are in talks to reach a settlement with bond insurer MBIA Inc that could end a legal battle over billions of dollars in losses triggered by the financial crisis, the Wall Street Journal said, citing people familiar with the matter.

Seven big banks, including Bank of America and Morgan Stanley are suing over the split of MBIA’s municipal bond business from its structured-finance operations, which suffered big losses from insuring mortgage debt.

The lawsuits assert the reorganization left the structured-finance unit unable to pay off billions of dollars in claims.

Resolving the disputes could involve some payments from the insurer to certain banks, the newspaper said.

A spokesman for the bank policyholder group told Reuters there were no such discussions between the group and MBIA.

“There have been absolutely no discussions regarding a settlement between the bank policyholder group and MBIA,” the spokesman said.

A spokesman for MBIA declined to comment on the Journal report.

If settlements are not reached, the case is expected to go to trial in a New York state court in early 2012, the Journal said.

There is no deadline for settlements and the task is difficult as some banks have complex exposures to MBIA, once the world’s largest bond insurer. It is not clear whether banks would settle as a group or individually with MBIA, the paper said.

Reporting by Sakthi Prasad in Bangalore and Jonathan Stempel in New York; Editing by Vinu Pilakkott

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