Sideways: Inconsistent Brown rewrites history
Jay Brown, chief executive of monoline insurer MBIA, certainly does not lack nerve. A lesser executive might have stayed in retirement after it became apparent that the business model he developed in almost a decade at the helm of the firm was hopelessly flawed. Instead Brown – who temporarily stepped down as chief executive in 2007 – returned in 2008 to resume battle with his many critics. He has been a thorn in the side of bank chief executives ever since and is winning more battles than he loses as he attempts to shift blame for MBIA’s central role in the credit crisis to the dealers that structured ABS and CDO deals backed by poorly performing mortgages.
Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks
Brown’s tactic of trying to split some banks from the pack of firms pursuing MBIA with a claim that it should not have been allowed to split into two separate units in 2009 is bearing fruit. Barclays and JPMorgan dropped out of the suit at the end of last year and others might follow if they can agree terms to commute existing trades with MBIA.
The remaining banks in the suit recently enlisted BlackRock – the new expert witness of choice for fixed-income market disputes – to produce a report saying that because MBIA underestimated future losses by about $12 billion when it split in two, the separation should not have been allowed.
While it fights this case, MBIA is simultaneously suing banks including Bank of America, Credit Suisse and Morgan Stanley, claiming that they knew that mortgages backing deals they insured with the firm were fraudulent.