2014 ended on a sour note for Bank of America Corporation (BAC) in terms of legal issues. Despite resolving majority of its mortgage-related lawsuits during the year, legal headwinds continue to haunt the company.
Per a Reuters report, BofA has been sued by Ambac Assurance Corp., a principal operating subsidiary of Ambac Financial Group, Inc. (AMBC). Through the lawsuit, Ambac Assurance seeks to recoup losses of millions of dollars that arose from insuring nearly $1.7 billion worth of faulty mortgage-backed securities (MBS).
These MBS were issued by Countrywide Financial Inc. (acquired by BofA in 2008) in eight transactions between 2005 and 2007.The lawsuit, filed in New York State Supreme Court, accused Countrywide of misrepresenting facts about the underlying loans that backed these MBS.
Further, Ambac Assurance stated that as of Oct 31, 2014, it faced probable claims of more than $600 million as a result of insuring these MBS. Also, as of Nov 30, 2014, the underlying loans had suffered a loss of roughly $3.1 billion.
Although BofA’s Chief Executive Brian Moynihan claimed (after reaching a $16.65 billion-worth mortgage settlement) “We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future,”; we believe such legal headwinds will continue to trouble BofA in the quarters ahead.
Nonetheless, one cannot deny that BofA has come a long way since the financial crisis. In spite of such legal headwinds, we believe that the company is well poised to overcome unfavorable situations and report strong performance going forward.
Currently, BofA carries a Zacks Rank #3 (Hold). Some better-ranked major banks include The Bank of New York Mellon Corporation (BK) and Citigroup Inc. (C). Both these stocks sport a Zacks Rank #2 (Buy).
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