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Can the "Asbestos Option" Be the Ace Up Bank of America's Sleeve?


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http://finance.yahoo.com/news/Insight-Extreme-makeover-BofA-rb-2714735965.html?x=0&.v=3

 

When some look at all of the litigation arising from Bank of America's big role in the U.S. mortgage mess, they start thinking of asbestos and how thousands of lawsuits arising from that cancer-causing product brought down many manufacturers more than a decade ago.

 

The solution back then to dealing with claims filed by more than 750,000 workers exposed to asbestos was the creation of dozens of "asbestos settlement trusts," which have paid out tens of billions dollars in damages. Some of them are still going strong today.

 

The asbestos trusts were seen as an innovative approach to deal with seemingly endless litigation and provide a measure of compensation to sick workers and their families. The system for dealing with claims also allowed some of the hobbled manufacturers to emerge from bankruptcy largely free of the crushing weight of lawsuits.

 

Now some investors in soured mortgage-backed bonds sold by Bank of America and advocates for struggling homeowners are wondering whether a similar strategy can be used to deal with litigation claims that Wall Street analysts estimate could cost the nation's biggest bank more than $50 billion.

 

"We've suggested an asbestos-style settlement as a solution. It makes the most sense," says Vincent Fiorillo, a portfolio manager with DoubleLine Capital, a $15 billion bond shop that has its own pending claims against the Charlotte, North Carolina-based lender. "It is better than where we are right now."

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