July 14, 2011 / 7:56 PM / 9 years ago

MBIA shares surge on report of BofA settlement offer

The sign of a Bank of America branch is pictured in downtown Los Angeles October 8, 2010. REUTERS/Fred Prouser

NEW YORK (Reuters) - Shares of bond insurer MBIA (MBI.N) surged as much as 12.9 percent on Thursday after Bloomberg reported that Bank of America (BAC.N) had made a preliminary settlement offer to MBIA in their dispute over defective mortgages.

There has been heavy deal speculation in the market since earlier this week, after the two sides agreed to drop a separate legal dispute.

A BofA spokesman was not immediately available to comment. MBIA declined to comment.

MBIA shares closed up 9.2 percent at $10.02. They had traded as high as $10.36 on the news. Bank of America shares fell 13 cents to $10.07.

Bloomberg, citing two sources briefed on the discussions, said the two sides had yet to agree on the size of the settlement.

A settlement with MBIA would continue a string of multibillion-dollar deals by BofA this year, a reversal after Chief Executive Brian Moynihan said last fall the bank would fight against mortgage repurchase claims.

In April, BofA settled with MBIA competitor Assured Guaranty (AGO.N) for $1.6 billion over claims the bank should cover losses stemming from mortgage-backed securities insured by the company.

A mortgage settlement with MBIA would also raise questions about the future of a suit 12 banks are pursuing against the insurer, alleging its 2009 restructuring was fraudulent. That suit was recently revived by New York’s highest court.

Using the Assured Guaranty settlement as a template, MBIA investor Branch Hill Capital has estimated a deal with BofA could be worth $2 billion or more, which would help eliminate the liquidity issues at the heart of the fraud suit.

Reporting by Ben Berkowitz in New York and Joe Rauch in Charlotte; Editing by Steve Orlofsky, Gary Hill

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