Bank of America Corporation
) litigation woes seem to persist over time. Justice Saliann
Scarpulla - who replaced Justice Barbara Kapnick - in the case
relating to BofA's proposed settlement of $8.5 billion with
investors, related to faulty mortgage securities, has postponed
the final judgment on the case. The New York state court in
Manhattan has decided to withhold its final decision on the case
until Feb 19.
Justice Scarpulla's decision comes days after Justice Kapnick
approved BofA's settlement with investors and ordered that the
ruling to take effect from Feb 7. The group of investors included
American International Group, Inc.
), Pacific Investment Management Co. and MetLife Inc.
These companies bought mortgage-backed securities (MBS) trusts
from Countrywide Financial Corp. prior to the financial crisis.
Notably, BofA acquired Countrywide in 2008.
However, on Feb 4, the American Insurance Group sought to delay
the final judgment on the lawsuit, as it believed that certain
issues had not been dealt with in Justice Kapnick's time.
Further, the company held that the final judgment on the lawsuit
should not be declared until there were further proceedings to
decide how losses would be calculated and how the settlement
amount would be distributed.
In Jun 2011, BofA had reached an agreement to pay $8.5 billion
for its legacy Countrywide mortgage repurchase and servicing
claims. The settlement took place with 22 investors who had
suffered significant losses in 530 MBS trusts that were sold by
Countrywide prior to the financial crisis.
The group of investors alleged that Countrywide had sold
securities that were related to bad-quality loans. Further, the
loans were not even well-managed by the trustee. Therefore, the
investors sought a buyback relief in MBS that was offloaded by
Notably, the settlement was opposed by the AIG as it held that
The Bank of New York Mellon Corporation
) - the trustee representing the investors - did not make
adequate effort to recover money for the distressed investors.
The insurer major stated that the settlement amount was
inadequate to compensate the losses incurred by investors.
However, Kapnick dismissed claims by the American Insurance Group
and ruled that BNY Mellon acted mostly in good faith at the time
of the agreement.
BofA continues to suffer from flaws in Countrywide's transactions
prior to the financial crisis. The aforementioned postponement of
the settlement could result in BofA having to shell out a much
larger sum than what was initially agreed upon. The company has
already incurred more than $40 billion in losses from bad loans,
MBS claims and lawsuits. Though the company has settled quite a
few lawsuits related to Countrywide, it still faces numerous
litigations that could weigh on its financials going forward.
Currently, BofA carries a Zacks Rank #3 (Hold).
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