Bank of America Corp. (NYSE:BAC) executives will be breathing a sigh of relief today after a New York Supreme Court Justice refused American International Group Inc. (NYSE:AIG), Seth Klarman’s The Baupost Group (AKA Walnut Group) and others have had their petition to have the case against Bank of America turned into a plenary action in order to . The move will save the bank from a much wider and deeper inquiry into its dealings with mortgage binds in the time surrounding the financial crisis.
Currently the inquiry into Bank of America is an Article 77 hearing. An Article 77 is a limited process usually used for trust hearings. The move to have the type of hearing changed was made to avoid the $8.5 billion settlement agreed to by Bank of America and most of the other investors in the case. Those investors which also included Blackrock (NYSE:BLK) and MetLife Inc. (NYSE:MET).
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
Those investors believe that the agreement that has been reached leaves Bank of America underpaying them massively. 22 of the investors believe the deal that was reached was adequate, but some are holding out in hopes of a more favorable settlement or decision by the court.
The suit relates to Bank of America’s Countrywide operation which it purchased for $2.5 billion in 2008. Investors have alleged that that financial institution misled them into investing in mortgage bonds that subsequently lost most of their value in the wake of the 2008 financial crisis. The Bank is obviously willing to settle the case in order to put a plug in the matter and move on, though that attitude does not sit well with some of those who took the losses.
The case is one of many ongoing processes seeking to unravel the deals made in the lead up to the crisis that may have been fraudulent in one way or another. It signals the continuing mode by major financial institutions to define themselves in terms of that event even as revenues continue to slip. The continued devotion to such issues may turn out worse for the firms objecting to the terms as legal fees mount up and chances of success seem to be getting slimmer.
Although the consumer market is recovering, as evidenced by credit results from financials earnings, the investment market is moving in the opposite direction. Increased regulatory pressure and the coming Dodd Frank bill have caused many to question the returns offered by the institutions and in turn demand lower fees from investment funds.