The Appellate Division of the New York State Supreme Courtyesterday reversed a lower court ruling and granted MBIA's motionto dismiss a suit brought against it by a group of banks that hadsought to block the transformation of the Armonk NY financialinsurance company.
|The banks had alleged a restructuring--approved by New Yorkstate insurance department in 2009--transferred some $5 billion outof MBIA's primary operating unit and into an entity now known asNational Public Finance Guarantee Corp. That money transfer, saidthe banks, amounted to a "fraudulent conveyance" and left MBIApotentially unable to cover losses incurred by holders of MBIAfinancial 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 themajority, noted that the plaintiffs "did not allege that thecompany failed to pay them on any outstanding claims, or even thatthey have suffered any other monetary damages."
|While some worry this ruling may eventually result in greaterlosses for credit unions--especially corporate credit unions inregard to their holdings in mortgage backed securities--there isuncertainty on that score. CUNA spokesperson Pat Keefe said, "Theimpact [of the ruling] is unclear as of this time."
|John McKechnie, NCUA public affairs director, added: "NCUA isnot a party in the MBIA litigation. We are studying the ruling todetermine what effect, if any, it may have on securities previouslyowned by corporate credit unions that have been placed inliquidation. Beyond that NCUA is not speculating."
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