MBIA Insurance Corp. voluntarily dismissed with prejudice its case against Bank of America Merrill Lynch, prompting analysts to speculate that a settlement could be reached soon.

Quinn Emanuel Urquhart & Sullivan, counsel for MBIA Insurance, filed a document Monday in the New York State Supreme Court that said: "All claims, counterclaims, and cross-claims that were asserted or could have been asserted by either party shall be voluntarily dismissed with prejudice," meaning MBIA is barred from filing another case on the same claim.

Analysts speculate MBIA would only voluntarily dismiss a claim if they have reached a settlement. "Dropping a lawsuit with prejudice usually means there has been a settlement because they can't go back and litigate," one hedge fund manager said.

The longer the case goes on between MBIA and Bank of America Merrill Lynch, he said, the more a precedent is set for future cases, "so Bank of America wants to settle as soon as possible."

The lawsuit - originally filed by MBIA in April 2009 - claims Merrill Lynch engaged in fraudulent conduct when it arranged and marketed credit-default swaps with a face value of $5.7 billion between July 2006 and March 2007. MBIA claims the banks had "superior knowledge" of the risks inherent in the structured product and was induced by Merrill to protect those products based on those marketing materials.

The lawsuit subsequently had its share of drama in the courts. In April 2010, five of the six complaints MBIA filed against Merrill were dismissed, and the sixth one - a breach of contract claim - was dismissed in February 2011. MBIA then filed an amended complaint claiming Merrill "did in fact have exclusive knowledge" of the contents of the structured products. A second amended complaint was also filed in May and MBIA filed a motion to appeal the dismissal in June.

This settlement comes only a few months after Bank of America Merrill settled with rival bond insurer Assured Guaranty. One hedge fund manager said that "the MBIA settlements will be on better terms than Assured settlement" because B of A Merrill's relationship with MBIA is more complex than its relationship with Assured.

At a May conference, Bank of America chief executive officer Brian Moynihan said he was focused on a complete legacy clean-up. "On the monoline side, we have been working in the first quarter with Assured Guaranty" to "put the issues behind," he added.

Issues with other monolines are "more difficult because the relationship is so much more complex," he said, but "we continue to work on those also."

In April, Assured captured $1.1 billion from the bank, which was the biggest settlement to date for a municipal bond insurer since the housing collapse.

A hedge fund manager recently said the settlement between Assured and Bank of America would have a positive impact on future litigation between MBIA and B of A and that they were in "advanced stages of litigation - that should increase settlement value versus Assured."

MBIA and Bank of America Merrill Lynch declined to comment. Shares of MBIA in morning trading were up over 8%.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.