Investors have prosecuted
Bank of America Corporation
) along with its unit - Countrywide Financial - over the sale of
$261 million worth of flawed residential mortgage-backed
securities (RMBS), according to a Bloomberg report on November
Investors, including Dublin-based Phoenix Light SF Ltd, have sued
BofA for selling faulty RMBS with misleading statements.
Investors allege that the offer material contained
misrepresentations of the information pertaining to underlying
loans, including the percentage of properties held by the
This led to huge losses and now investors are seeking
compensation of nearly $122.2 million from BofA and Countrywide.
The case is filed in New York State Supreme Court in Manhattan.
BofA's legal woes seem to be ceaseless. Earlier in September,
Phoenix Light had dragged BofA, along with
JPMorgan Chase & Co.
The Goldman Sachs Group, Inc.
) as well as Ace Securities - a wing of
Deutsche Bank AG
) - to court for losses suffered over faulty mortgage-backed
securities. Now, Phoenix Light is a limited liability company,
which inherits legal claims in lieu of rescue finance on behalf
of companies that have collapsed or are on the verge of a
JPMorgan and Goldman are encountering a $1.8 billion lawsuit,
whereas Ace Securities is facing a $300 million lawsuit. BofA has
been sued for losses summing to $36.6 million over $69.8 million
worth of MBS.
To add to its woes, recently, a U.S. District Judge in Manhattan
cancelled a bid by Merrill Lynch - a wing of BofA - regarding the
dismissal of a lawsuit filed by the regulatory body of Federal
Housing Finance Agency (FHFA) against it. The lawsuit pertained
to the sale of billions of dollars worth of RMBS to
government-sponsored entities - Freddie Mac and Fannie Mae -
using misleading statements.
BofA continues to counter problems related to the acquisitions
(namely Countrywide and Merrill Lynch) it made during the height
of the financial crisis. These acquisitions have been draining
the company's funds through various litigations and losses. BofA
is passing through a rough patch with all the litigation
Apart from the aforesaid litigation, the company is also
confronting many other lawsuits related to the sale of MBS.
However, on the positive side, the ill effects of these are
likely to be eliminated by the gradually strengthening
fundamentals of the company.
BANK OF AMER CP (BAC): Free Stock Analysis
DEUTSCHE BK AG (DB): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
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BofA currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We believe that on account of such
litigation overhangs, there is little possibility of any upward
estimate revisions; thereby the stock is expected to hold its
current rank. Currently, we maintain a long-term Neutral
recommendation on the stock.