The New York State Insurance Department had many good reasons to approve the split of MBIA Inc. into two parts in 2009, the state’s attorney said Tuesday.

Rating agencies downgraded MBIA in April to June 2008. In response, the NYSID considered splitting it into two companies, according to David Holgado, the attorney defending NYSID in a lawsuit. One of the two companies would focus on insuring municipal bonds.

In February 2009, the department approved the transformation. In June 2009, several banks sued MBIA and the department seeking to reverse the transformation, claiming the split reduced the value of their insurance.

For almost three years the Article 78 case has advanced through the submission of depositions of witnesses, relevant documents and other written material. This is one of two cases seeking to reverse the transformation.

Of about 18 banks that originally were in the case, only Bank of America and Société Générale remain as plaintiffs.

In the winter of 2008 and 2009 the economy was tanking and only one insurer was actively offering new bond insurance, Holgado said. NYSID sought to unfreeze the municipal bond insurance market.

The department believed unfreezing the market would help municipalities issue bonds to construct capital projects. And launching public capital projects was consistent with President Obama’s efforts to reverse the economic decline, Holgado said.

When considering the transformation, the NYSID also was guided by a belief that it would help each of the new branches raise capital.

Finally, Holgado said the department was inclined to approve the split because it knew that it would continue to regulate the resulting two companies. If any problem developed with either branch the NYSID could make adjustments, then New York superintendent of insurance Eric Dinallo said in an affidavit.

Holgado on Monday presented other reasons for NYSID approval of the split. One of these reasons was the department’s belief that MBIA Corp., which would handle structured finance, would pay its claims as they came due.

A second reason was the fact that the transactions involved in creating the split would be simultaneous.

A third reason was that at the time there was federal assistance for all policyholders, including the banks.

On Tuesday Holgado also attacked what he called the “petitioners’ red herrings.”

He said perhaps the petitioners’ “biggest distraction” is an analysis Lehman Brothers Holdings Inc. did in 2008.

The banks have said that the analysis of MBIA’s asset-backed securities and collateralized debt obligations suggested the potential for much broader losses than MBIA’s own analysis. The banks’ lawyers have said that MBIA hid the Lehman analysis from NYSID when it was considering MBIA’s transformation.

Holgado pointed out to Judge Barbara Kapnick that she has stated that evidence not considered by NYSID is not relevant to the case.

He also noted that in 2008 and early 2009 there were many predictions about MBIA’s future. The department was aware of many of these predictions and the range of forecasts for MBIA.

If the NYSID had the Lehman forecast, it would have been just one more “data point” to consider, Holgado said.

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