Bank of America Scores Victory Against Seth Klarman’s Baupost Group


Bank of America Corp (NYSE:BAC) saw a stroke of luck with the dismissal of a lawsuit by mortgage-backed securities investors who demanded the bank buy back the defective loans which total more than $1 billion.  Justice Barbara Kapnick of the New York State Supreme Court threw out the lawsuit that was filed last year saying that the lawsuit against BofA was “premature”.

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Countrywide Financial, under the authority of Bank of America, was a major player in the financial crisis back in 2008.  The mortgage broker was accused of falsely representing its mortgage backed securities, according to the lawsuit that was filed.

Walnut Place currently holds $1.4 billion in these securities as it said in the court papers.  Walnut Place is pseudonym that is used by the Boston-based hedge fund, Baupost Group LLC.  The founder of the hedge fund, Seth Klarman was the “real plaintiff” in the case, according to court transcripts.

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What essentially got Walnut Place to file a lawsuit was The Bank of New York Mellon Corporation’s (NYSE:BK) failure to sue Bank of America on the grounds of making Bank of America responsible for repurchasing the faulty loans.   The Judge ruled this case “premature” because only days ago Bank of New York Mellon said that they would need more time to investigate the claims.

The investors were enraged by BNY Mellon’s “failure” to protect the bondholders, yet the bank has already followed the investors’ pleading with the $8.5 billion settlement with Bank of America and other institutional investors over the faulty Countrywide mortgage backed bonds.

Look, these investors have every right to be angry.  They were sold crappy bonds that were destined to fail from the beginning and Countrywide knew it.  However, it is my opinion that they are going about this the wrong way.  BNY Mellon should not be their target to unleash their anger upon.  The bank already sued BofA and got a hefty settlement.  Now they want more action but they are going to need to wait.  The fact that BNY Mellon says they need more time to investigate and develop a case should be respected.  These investors need to understand that BNY Mellon and even Bank of America are not the enemy here, Countrywide is.  Countrywide sold you the faulty bonds, no one else.  Yes, it would be great if BofA repurchased all of the faulty bonds but ultimately we are going to need to wait and see what BNY Mellon finds in their investigation and whether or not BofA will be liable to buy those bonds.  The next question is can Bank of America afford to buy $1 billion worth of bad mortgage backed bonds?

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