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The Star Online: Business

MBIA, Bank of America reach US$1.6bil cash settlement
Maybank Research maintains Buy on Perisai, TP RM1.40
Electronic Arts, Disney strike "Star Wars" games deal

MBIA, Bank of America reach US$1.6bil cash settlement

Posted: 06 May 2013 06:25 PM PDT

NEW YORK: Bank of America Corp has agreed to pay $1.6 billion (1 billion pounds) in cash to MBIA Inc and will receive the right to buy a 4.9 percent stake in the bond insurer to resolve long-running litigation, the companies said on Monday.

Bank of America will also remit $137 million worth of MBIA senior debt it acquired in December and provide MBIA with a $500 million credit line as part of the deal.

The accord will settle all of the two companies' disputes, including liability for MBIA as a counterparty in swap deals with Bank of America. Bank of America will take a charge against previously reported first-quarter earnings and its capital ratios will rise under Basel III as a result of the deal.

MBIA shares rose as much as 57 percent on the news. By the close, the shares were up 45 percent, at $14.29, while Bank of America shares closed up 5.2 percent at $12.88.

The settlement marks Bank of America Chief Executive Brian Moynihan's latest step to fix wide-ranging litigation related to the financial crisis and relieves investor fears that MBIA might face liquidation over the bank's claims.

In a statement, MBIA Chief Executive Jay Brown called the deal a "significant milestone" for the company, which is in the process of restructuring itself and risked running out of money within months if it had not settled the Bank of America dispute.

"I think Bank of America was able to put some pressure on and extract some clear leverage from the fact that MBIA looked to be on the brink," said attorney Don Hawthorne, a partner at Axinn, Veltrop & Harkrider who has represented clients in mortgage-backed securities litigation.

"It's probably a good deal all around," he added, reflecting that "MBIA obviously had a strong case and Bank of America had a strong negotiating position."

MBIA had long been in the sleepy business of guaranteeing municipal debt against default, but last decade it began guaranteeing riskier structured bonds, such as repackaged mortgage securities, in a bid to add revenue and profit.

That backfired as MBIA lost its top credit ratings and banks sought to hold it liable for losses after the housing bubble burst. Short sellers such as hedge fund manager William Ackman argued MBIA lacked capital to cover structured finance losses.

To survive, MBIA won approval in 2009 from New York's insurance regulator, now part of the state's Department of Financial Services, to split into a municipal bond insurer to underwrite new deals and a guarantor of structured finance products that would handle old claims.

But 18 banks objected, saying it would leave MBIA insolvent and unable to pay its mortgage-related claims.

Monday's settlement leaves Societe Generale as the only bank still in that case. A spokesman did not immediately respond to a request for comment.

AVOIDING LIQUIDATION

In a statement, Benjamin Lawsky, New York's financial services superintendent, said the deal was reached after more than a year of negotiations. He called it "a very positive step forward for both Bank of America and MBIA."

The deal came together after MBIA's board hired Blackstone Group LP as an adviser, said a person familiar with the matter, who was not authorized to discuss it publicly. A Blackstone spokesperson did not immediately respond to a request for comment on their role.

MBIA's structured finance unit could have been forced into liquidation or rehabilitation had the Bank of America case continued, the insurer said on February 27. Brown said that month that there was a "significant risk" of a regulatory proceeding.

In 2011, the municipal bond guarantee business lent $1.1 billion to the structured finance unit to fund settlements with bond buyers, debt that over time grew to be $1.7 billion. But the company's regulator refused to allow the structured finance unit to borrow more.

MBIA will use proceeds from the Bank of America deal to repay that loan, which stood at $1.6 billion as of May 2, following a $110 million payment from a separate settlement with Flagstar Bancorp Inc.

MORE LEGAL WOES

As part of the accord, Bank of America will receive warrants to purchase 9.94 million shares of MBIA, or roughly 4.9 percent of its outstanding stock, at a price of $9.59 per share. The warrants can be exercised any time prior to May 2018.

Some investors saw Bank of America taking an equity stake as a sign of confidence in MBIA's future.

Bank of America will take a charge of $1.5 billion, or 10 cents per diluted share, after taxes related to the settlement, slicing its previously reported earnings per share in half. Accounting standards dictate that it take the charge against first-quarter earnings because it has not yet filed its 10-Q report, Bank of America said.

The bank's Tier 1 capital ratio under Basel III standards will rise by 10 basis points to 9.52 percent to reflect a reduction in risk-weighted assets related to the MBIA swaps being cancelled. Its tangible book value per common share will drop by 10 cents to $13.36.

The MBIA deal is just the latest settlement Bank of America has reached to resolve crisis-era litigation.

Last month, the bank reached a $500 million settlement with investors who claimed they were misled by its Countrywide unit into buying risky mortgage debt. The second-largest U.S. bank still faces litigation by the Federal Housing Finance Agency on behalf of Fannie Mae and Freddie Mac, and by insurer American International Group Inc.

Bank of America is also awaiting court approval of an $8.5 billion deal reached with investors in Countrywide mortgage-backed securities. A hearing is scheduled to begin May 30.

On Friday, the New York and Delaware attorneys general dropped their objections to the deal. AIG and other parties remain opposed.

"I don't think anyone's going to ever at this point declare victory," Bank of America Chief Financial Officer Bruce Thompson said on a conference call last month. "We're moving through in a pretty meaningful way this pipeline of items."

News of the Bank of America-MBIA settlement was first reported by Dow Jones. - Reuters

Maybank Research maintains Buy on Perisai, TP RM1.40

Posted: 06 May 2013 06:24 PM PDT

KUALA LUMPUR: Maybank Investment Bank Research is maintaining a Buy on Perisai Petroleum with a target price of RM1.40, based on 11 times FY14 earnings per share.

The research house said on Tuesday that Perisai's Q1, 2013 results, to be released on Wednesday, were unlikely to spring any surprises.

"Overall, we expect a stronger H2, 2013 vis-vis H1, 2013 both operationally and financially, as activities pick up.

"We see upside to our forecasts (3-year net profit CAGR of 21%), for the earnings impact from its second rig has not been incorporated into our forecasts yet," it said.

Maybank Research expects Perisai's Q1, 2013 net profit to just about match its Q1, 2012 performance (RM23mil), making up 23% of its full year forecast.

The research house said earnings would be driven by the charter of MOPUs (61%), followed by its pipe-lay vessel E3 (28%) and the operation of eight OSV (11%). Its forecasts were unchanged.

It expected Perisai to secure its maiden jack-up rig contract by H2, 2013, before the delivery of its Pacific 101 jack-up rig by end-July 2014.

"Perisai should command prevailing market rates of about US$150,000 to US$170,000 a day for this rig.

"Meanwhile, we expect its 51%-owned FPSO to be deployed in Jul 2013. Perisai will likely dispose its pipe-lay vessel (E3) concurrently with the deployment of the FPSO," it added.

Electronic Arts, Disney strike "Star Wars" games deal

Posted: 06 May 2013 06:21 PM PDT

Published: Tuesday May 7, 2013 MYT 9:22:00 AM

SAN FRANCISCO: Electronic Arts and Walt Disney Co sealed a multi-year licensing deal under which the video game publisher will develop games for mobile devices, PCs and consoles based on the "Star Wars" movies.

Disney, which bought George Lucas's Lucasfilm Ltd and the blockbuster sci-fi franchise for $4.05 billion in October, will retain the rights to develop online and mobile games, both companies said in a statement on Monday.

They did not reveal the financial terms of the agreement.

EA bet big on the Star Wars' world of jedis and wookies in 2011 by releasing its "Star Wars: The Old Republic" - a massive multiplayer player online game, or MMO, that allows thousands of people to play simultaneously for a monthly subscription fee as opposed to a one-time purchase.

Analysts said EA made a record investment of between $100 million and $300 million to build "Star Wars: The Old Republic," but EA has not disclosed costs. It hired more than 1,000 voice actors for "Star Wars: The Old Republic," which broke a game industry record.

But the game has struggled to retain players, prompting the company to offer 15 game levels for free in June last year. And in November, it launched a free-to-play version of the game.

Disney, which has its own interactive games division, last month shut the 30-year-old LucasArts games studio it inherited with the acquisition to focus on licensing its "Star Wars" brand externally.

EA shares were up 2 percent at $18.67 and Disney's stock was up slightly at $65.17 in after-hours trading. - Reuters

Kredit: www.thestar.com.my

Isnin, 6 Mei 2013