A group of banks seeking to prevent guaranty insurer MBIA Insurance Corp. from splitting into two companies says the company underestimated its losses by as much as $10 billion to the N.Y. State  Insurance Dept.

In papers filed with the Supreme Court of the State of New York in New York City this week, the 11 financial institutions that hold insurance policies covering collateralized debt obligations allege that the underestimated losses were revealed during an analysis by BlackRock Solutions.

The plaintiffs further argue that then-N.Y. Superintendent of Insurance Eric Dinallo failed to adequately review MBIA’s numbers with an independent analysis firm, such as BlackRock.

If he had done so, the banks say, it would have become apparent that a split of the company was not feasible.

In the recent BlackRock evaluation, a team of 20 financial experts reviewed the MBIA’s financial position regarding its exposure to CDOs and found that future losses ranged from $13.8 billion to as much as $20.8 billion in a worst-case scenario.

“According to BlackRock’s analysis, the expected insurance losses on less than one quarter of MBIA Insurance’s portfolio rendered MBIA Insurance deeply insolvent as of Dec. 31, 2008,” the filing says. “Indeed, the BlackRock loss projections put to rest any notion that MBIA Insurance likely will meet the enormous pending liabilities on its structured-finance insurance policies over the next 30 and more years.”

In an e-mail statement, Chuck Chaplin, MBIA’s president and CFO, says: “Although MBIA and its counsel will respond to the materials filed by the banks in detail in due course, we believe they are without merit and we remain confident that the court will affirm the New York State Insurance Department’s decision to approve MBIA’s transformation, which came after a thorough and careful analysis.

MBIA sought permission to split the company in two, placing its healthy municipal-bond insurance business in one company to be named National Public Finance Guarantee Corp. while MBIA would retain the CDO coverage exposures.

The banks say that under that structure the insurer would not have enough reserves to pay claims. The banks have filed an Article 78 action against the insurance department to nullify the split.