Judge Throws Out Bank Suit Against MBIA

A New York state court dismissed on Monday a lawsuit by a group of banks against bond insurer MBIA Inc that challenged the firm's 2009 restructuring.

The suit, filed in the summer of 2009, challenged the approval by New York regulators of MBIA's split into two businesses - a municipal bond insurer and a guarantor of structured finance products.

The banks claimed the restructuring was fraudulent and done in such a way as to leave MBIA insolvent to pay their claims. The case made its way through nearly three years of briefings before three weeks of oral arguments last May and June.

New York Supreme Court Judge Barbara Kapnick ruled on Monday that the state's insurance regulator did not act in an "arbitrary and capricious" manner and that it had a rational basis for allowing the restructuring.

MBIA shares rose more than 24 percent in afternoon trading to their highest point in 13 months.

The banks' attorney said they plan an appeal.

A representative of Bank of America Corp, the main remaining plaintiff in the case, was not available to comment. MBIA had no immediate comment.

A spokesman for the New York Department of Financial Services was not immediately available for comment. Eric Dinallo, who was New York insurance superintendent at the time and is now an attorney in private practice, was also not immediately available.

The case is ABN AMRO Bank N.V. et al. v. Eric Dinallo et al., New York Supreme Court, County of New York, No. 601846/09. (Reporting By Jonathan Stempel and Karen Freifeld in New York and Rick Rothacker in Charlotte, N.C.; Writing by Ben Berkowitz; Editing by Gerald E. McCormick, Leslie Adler and Andre Grenon)