Bank of America Corporation (BAC) has yet again been sued by Western and Southern Life Insurance Co. for $63 million losses incurred by the latter owing to BofA’s alleged role in misrepresenting mortgage-backed securities (MBS) that it sold to the insurer.
Earlier in April, Western and Southern Life had sued BofA and claimed $225 million on MBS, which were sold to the insurer by Countrywide Financial Corp. BofA had acquired Countrywide Financial in 2008.
Western and Southern Life is an insurance firm providing personalized services through more than 180 offices operating in 22 states and the District of Columbia. It is an affiliate of Western & Southern Financial Group, a Cincinnati-based financial services providing company.
In the lawsuit filed in Hamilton County Common Pleas Court, Western and Southern Life has listed $134 million as the amount it had invested in MBS that it had purchased from BofA during 2006-2008. The company alleged that BofA had neglected its underwriting procedures in regard to MBS it sold to Western and Southern Life.
Western and Southern Life’s lawsuit also states that though many of these loans were AAA-rated at the time of sale, they later defaulted or were foreclosed. As a result, these securities lost about 47% of their value. Furthermore, BofA had not properly scrutinized the documents related to loans and many of the loans were based on flawed information including overstated incomes, inflated appraisals and false verifications of employment.
Previously, Western & Southern Life also filed similar lawsuits against Credit Suisse Group (CS) as well as Morgan Stanley (MS) to recover losses of over $175 million of securities.
While such lawsuits would dent BofA’s reputation and its financials, we believe that investors, who have lost their hard-earned money in such investments, should feel relieved.
Shares of BofA currently retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock.
BANK OF AMER CP (BAC): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
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