Bond Insurer Sues Merrill Lynch Over Collateralized Debt Obligations

The world’s largest bond insurer MBIA Inc. (MBI) sued Merrill Lynch & Co on Thursday seeking damages for losses from complex debt securities it insured for the bank.

From Reuters: The lawsuit, filed in New York State Supreme Court in Manhattan, seeks to void certain credit default swaps and related insurance contracts that MBIA, through a special purpose vehicle, wrote on the securities held by Merrill.

The insurer wrote $5.7 billion in guarantees on these securities, which were packages of mortgages known as collateralized debt obligations (CDOs), it said in a statement.

“MBIA believes that Merrill Lynch’s effort to market the CDS contracts to MBIA was part of a deliberate strategy to offload billions of dollars in deteriorating U.S. subprime residential mortgages,” the company said in a statement.

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