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What: Shares of bond insurer MBIA
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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