The much awaited legal settlement for Bank of America Corporation (BAC) has finally been approved. New York state judge Barbara Kapnick approved the $8.5 billion settlement (announced in Jun 2011) of BofA with institutional investors over soared mortgages.
While approving the settlement, Kapnick dismissed claims by a group of investors led by American International Group, Inc. (AIG) and ruled that The Bank of New York Mellon Corporation (BK), the trustee representing the investors, acted mostly in good faith at the time of consenting to the agreement.
However, the judge withheld approval on one account stating that the trustee did not act reasonably. Kapnick stated that BNY Mellon should have been more diligent while settling modified mortgage repurchase claims worth roughly $31 billion.
Earlier in Jun 2011, BofA reached an agreement to pay $8.5 billion for its legacy Countrywide Financial Corp. mortgage repurchase and servicing claims. The settlement took place between 22 investors who suffered significant losses for their investments in 530 mortgage backed securities (MBS) trusts that were sold by Countrywide prior to the financial crisis. BofA acquired Countrywide in 2008.
The group of investors, including BlackRock Inc. (BLK), AIG, Pacific Investment Management Co. and MetLife Inc. alleged that Countrywide had sold securities that were tied to bad-quality loans. Further, the loans were not even well-managed by the trustee. Therefore, the investors sought a buy back relief in MBS that was offloaded by Countrywide.
Notably, the settlement was opposed by AIG on the grounds that BNY Mellon did not make enough efforts to recover money for the distressed investors. The insurer major stated that the settlement amount was inadequate to compensate the losses incurred by investors. Though now AIG’s allegations have been dismissed by the judge, the former stated that the case is far from over as the judge did not fully approve the settlement.
Additionally, shares of BofA fell 1.1% in intra-day trading on Friday. The investors expected a clear victory for BofA, but they were slightly disappointed with the outcome of the judgment.
Nevertheless, the Fitch Rating stated the judgment a ‘credit positive’ for BofA. The agreement basically covered most of the company’s legacy Countrywide- issued first-lien MBS repurchase exposure.
BofA continues to suffer from flaws in Countrywide’s transactions prior to the financial crisis. The company has incurred more than $40 billion in losses from bad loans, MBS claims and lawsuits. Though the company has settled quite a few lawsuits pertaining to Countrywide, it still faces numerous litigations that could weigh on its financials going forward.
Currently, BofA carries a Zacks Rank #2 (Buy).
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