December 13, 2011
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of bond insurer MBIA (NYSE: MBI ) popped this morning by 11%, but have given it all back and are sitting slightly in the red as of this writing, after it settled an ongoing suit with Morgan Stanley (NYSE: MS ) .
So what: Morgan Stanley issued a press release announcing that the settlement terminates the outstanding credit default swap protection that MBIA had purchased on commercial mortgage-backed securities. The resolution will result in a net cash payment to Morgan Stanley, while the financial giant will recognize a pre-tax loss of roughly $1.8 billion.
Now what: Putting the lawsuit behind both companies will remove some uncertainty for investors, even though MBIA shareholders might not be too thrilled at having to pay $1.1 billion. The settlement resolves the claims at around 10% of face value, which is fairly reasonable. From Morgan Stanley's perspective, it will free up capital that the company can use to reinvest in its client-focused businesses.
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