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Holy BAC today!

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Court has allowed NY & Delaware to participate in the 8.5 Billion settlement talks in yesterdays ruling. Looks like this settlement is going to get messy.




New York and Delaware won their bids to intervene in litigation over Bank of America Corp.’s proposed $8.5 billion settlement with mortgage-bond investors.


New York State Supreme Court Justice Barbara Kapnick in Manhattan granted motions by the attorneys general of the states to intervene in the case over the objections of an investor group, according to a decision today.


New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden “have identified legitimate quasi- sovereign interests at play” in the case, Kapnick wrote. The judge also said she isn’t persuaded by arguments that the intervention would delay or burden the proceeding.


The settlement would resolve claims from investors in Countrywide Financial Corp. mortgage bonds. Bank of America acquired the mortgage lender in 2008. Bank of New York Mellon Corp., as trustee for investors, is seeking approval of the deal in state court.


A federal judge previously approved requests by the states to participate in the proceeding. The case was then transferred to state court, and the states asked Kapnick for permission to intervene.


Schneiderman’s office said in court papers that there are “serious questions about the fairness and adequacy” of the settlement, which covers just “a small fraction” of investor losses. Biden’s office said it was seeking to intervene to protect investors as well as homeowners affected by the agreement.


“Today’s ruling is an important victory in Attorney General Schneiderman’s extensive work to protect the integrity of New York’s global financial markets while providing meaningful relief to those who have suffered from the mortgage crisis,” James Freedland, a spokesman for Schneiderman, said in a statement.


A group of institutional investors that negotiated the settlement, including BlackRock Inc. (BLK), argued the states don’t have standing to intervene in a private contract dispute. Robert Madden, an attorney for the group, didn’t respond to an e-mail seeking comment.


Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, and Kevin Heine, a spokesman for BNY Mellon, declined to comment about Kapnick’s decision.


The case is In the matter of the application of the Bank of New York Mellon, 651786-2011, New York State Supreme Court (Manhattan)

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I'm not sure how she could possibly reach this conclusion:


"The judge also said she isn’t persuaded by arguments that the intervention would delay or burden the proceeding."


Either there are substantial questions or not, and if there are, it has to delay the proceeding; if not, why allow it? 

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Judge Kapnick is the same one who is about to decide on the article 78 challenge to the MBIA transformation. She has shown some displeasure and impatience with how the banks lawyers wanted and presented their case. She was not too happy either when the N.Y. state senate talked about an inquiry on the transformation right during her trial. There was discussion that the banks pushed for that. And when I say banks, it is only two or Bank of America and Societe Generale while the others or 16 have already settled. So how do you think she is going to go about this case?


While Mr. Moynihan seems to be a pretty good banking manager, I must admit to be scratching my head regarding legal affairs. We remain exposed to very significant risk by trying to save a few billions there and there. If it goes wrong enough, it could wipe out a big portion of tangible shareholders equity. There was some speculation that this was being done to spread payments over time, but the way most cases are now going in court, I see a significant uptrend in how much it is going to cost, not to mention the massive legal costs that must be incurred.


So if legal reserves already in place are exceeded by a significant amount, expect the share price to drop significantly which would make an equity issue near impossible due to dilution. That is how bank stocks have reacted in the past 5 years whenever capital had to be raised. That is why I am concerned with BAC and believe that settling quickly some of these important cases which could be used as precedents for other ones needs to happen now.



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It looks like BAC tried to settle with MBIA in the past and they must not have been able to come to an agreement, see the article below from last July. I agree that prolonging the litigation does raise a decent amount of risk. The other side is that MBIA isn't allowed to write any new business until the 78 proceedings are complete. I don't know if they are unable to write new business if they win the current trial and BAC appeals it. The other option is to put Countrywide into BK. I'd prefer a settlement and move on.


Bank Of America Said To Offer MBIA Deal In Mortgage Suit

By Hugh Son and Cristina Alesci - Jul 14, 2011 1:09 PM PT


Bank of America Corp. (BAC), the biggest U.S. lender, has made a preliminary offer to bond insurer MBIA Inc. (MBI) aimed at settling a legal dispute tied to defective mortgages, according to two people briefed on the discussions. MBIA shares surged as much as 13 percent.

The two companies remain split on how much the Charlotte, North Carolina-based bank would have to pay to resolve the disagreement and it is unclear when an agreement can be reached, said the people, who declined to be identified because the talks are private. Bill Halldin, a spokesman for Bank of America, and Kevin Brown of Armonk, New York-based MBIA declined to comment.


A settlement would help revive the fortunes of MBIA, the biggest bond insurer before the financial crisis, which has posted cumulative losses of more than $5 billion since the end of 2006. Bank of America Chief Executive Officer Brian T. Moynihan is working to resolve demands from bond buyers and insurers over defective mortgages created by Countrywide Financial Corp., acquired by his predecessor in 2008.


“We will fight and represent your interest to the point where we got the interests represented,” Moynihan said in a June 1 conference. “There is a point where fighting doesn’t have any value.”


Toxic Loans

MBIA rose 84 cents, or 9.2 percent, to $10.02 at 4 p.m. in New York Stock Exchange composite trading. The stock sold for more than $73 in 2006 before defaults on mortgage bonds began to multiply. Bank of America slipped 13 cents to $10.07. The bank has this year announced settlements with Fannie Mae, Freddie Mac, bond insurer Assured Guaranty Ltd. and institutional investors tied to soured home loans.


The lawsuit is among several between Bank of America and MBIA, which guaranteed Wall Street’s toxic mortgage debt. Bank of America bought Countrywide in 2008 and Merrill Lynch & Co. in 2009, two of the largest participants in the market for subprime home mortgages.

In response to an analyst’s question during a May conference call, MBIA Chief Financial Officer Charles Edward Chaplin said that cases over loan repurchases “typically do not go all the way through trial.”


MBIA has booked $2.7 billion in estimated recoveries on its balance sheet for mortgage-bond repurchase claims as of the first quarter, the firm said in a May filing. The insurer said it believes it is entitled to collect the full $4.6 billion of losses it has incurred on the debt. Through September, MBIA had paid out $2.5 billion on mortgage securities sponsored by Countrywide, Chief Executive Officer Jay Brown said in February.

An eventual settlement may cost Bank of America “in the higher end” of a $2 billion to $3 billion range, Robert Haines, an analyst at CreditSights Inc., said this week in an interview.


Countrywide, once the biggest U.S. home lender, was criticized by regulators for sloppy underwriting that contributed to record defaults on loans bundled into bonds that MBIA guaranteed. Defaults ran so high that Countrywide faced bankruptcy before it was rescued by Bank of America.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net Cristina Alesci in New York at calesci2@bloomberg.net

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How much are the settlement opponents going to be happy with?  $20b more?  Has it been reported anywhere?


I haven't seen it reported anywhere, but MBIA for example is reporting a certain amount that it will recover. From the Q1 2012 release: expected RMBS recoveries are 3.2bln and cumulative total incurred loan losses is 4.8bln.

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They will settle in both cases.  None of the parties want to risk walking away with little to show or nothing, so they will settle on mutual terms at some point.  It's a game of chicken, and eventually someone always gives in a little.  Cheers!

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