Banks say MBIA didn't tell NY its true condition before split
* Banks claim MBIA concealed analyses
* BofA among three banks seeking to reverse MBIA split
By Karen Freifeld
NEW YORK, April 9 (Reuters) - MBIA Inc hid its financial condition from the New York state insurance department in 2009 when it sought approval to restructure the company, according to Bank of America Corp and two other banks challenging that restructuring.
In a Monday court filing, the banks accused MBIA, once the world's largest bond insurer, of concealing two dozen analyses projecting billions in losses in commercial mortgage-backed securities, and instead giving the insurance department five optimistic scenarios that predicted zero losses.
That and other evidence in the filing proves MBIA misled the insurance department to secure approval for the restructuring, said Robert Giuffra Jr., lead counsel for the banks.
Bank of America, Natixis SA and Societe General , are seeking to reverse MBIA's 2009 split of its municipal bond business and structured finance operations, which suffered huge losses from insuring mortgage debt. They sued MBIA and the state's Department of Insurance.
The banks claim the restructuring was intended to defraud policyholders and that $5 billion was siphoned from the MBIA Insurance unit at their expense.
The trial is scheduled for trial May 14 in New York State Supreme Court in Manhattan.
"The banks' allegations are contrary to the facts," said Kevin Brown, a spokesman for Armonk, New York-based MBIA. The Insurance Department conducted a "thorough" investigation and the "approval was proper," he said.
David Neustadt, a spokesman for the state Department of Financial Services, which includes the insurance department, declined comment.
According to Monday's filing, MBIA also failed to disclose a September 2008 analysis by Lehman Brothers saying that the insurer was already insolvent.
The Lehman study projected nearly $8 billion in losses on 15 collateralized debt obligations, far more than MBIA's insurance unit had reserved for its entire portfolio of insured structured finance products, the brief says.
The Lehman study's projections "were so 'very dark,' that MBIA's executives told colleagues to 'keep this to yourself," according to the papers.
Since the restructuring, MBIA has spent more than $9 billion to pay claims and resolve liabilities, the banks say, more than five times reserves MBIA said would be sufficient for 45 years.
Eighteen banks filed suit over the restructuring. Most have settled claims. UBS AG has agreed to settle, according to people familiar with the matter.
The case is ABN Amro Bank NV et al, v Dinallo, New York State Supreme Court, New York County, No. 601846/2009.
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