A U.S. District Judge in Manhattan cancelled the bid of
Merrill Lynch - a wing of
Bank of America Corporation
) - to dismiss a lawsuit filed by the Federal Housing Finance
Agency (FHFA) against it. The lawsuit pertains to the sale of
billions of dollars worth of risky mortgage-backed securities
(MBS) to government-sponsored entities (GSEs) -
) - via misleading statements.
The U.S district Judge allowed the FHFA to pursue its legal
proceedings over Merrill Lynch's fraudulent representations.
Additionally, the Judge allowed proceedings for claims pursued
under the Washington, D.C. securities law. Moreover, proceedings
for punitive damages were allowed along with the right to annul
any doubtful mortgage transaction. Yet, some of the fraud claims
Freddie Mac and Fannie Mae suffered huge losses on MBS worth $200
billion during the financial crisis. As a result, in 2008, the
regulators apprehended these two GSEs and FHFA became their
conservator. BofA, along with Merrill Lynch and Countrywide
Financial, had underwritten nearly $57.5 billion of these
Therefore in September last year , the FHFA filed a lawsuit
against seventeen of the Wall Street biggies, including BofA,
JPMorgan Chase & Co.
The Goldman Sachs Group, Inc.
). The regulators opined that the losses suffered by the two
GSE's were the direct result of the failure of the banks to
properly disclose the risky nature of the securities sold. The
lawsuits are aimed at recouping these losses.
Earlier this year, JPMorgan and
Credit Suisse Group
) also came up with bids to dismiss the FHFA lawsuit, but were
rescinded as well. The trial is scheduled for June 2, 2014
Undoubtedly, BofA's legal woes are here to stay. These legal
troubles will very likely result in mounted expenses and affect
the company's top line. However, the measures undertaken by the
regulatory and legal authorities to come down hard on such
unwarranted activities of the banks will let the investors
breathe a sigh of relief.
BofA currently retain a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock
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