Bank Of America Gets the Ok for $8.5B MBS Settlement

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Bank of America received significant positive news on the legal front on Friday after the close as three very critical and visible parties – New York State Attorney General, Delaware State Attorney General, and Federal Housing Finance Authority (FHFA) – will no longer object to the $8.5 bil mortgage settlement with private investors that was first agreed upon in 2011 (but has been tied up in courts for two years). In addition several other small investors have also withdrawn their objections to the deal recently.

Bank Of America Gets the Ok for $8.5B MBS Settlement

Bank of America Corp (NYSE:BAC)’s Reasonable Chance At Receiving Court Approval

Analysts at BAML believes that this reduces some of the risk as the Attorneys General have been very vocal in their objection to the settlement. This change also implies that the AGs believe Bank of America Corp (NYSE:BAC) has a reasonable chance at receiving Court approval for the settlement, although the Attorneys General did not explicitly approve of the settlement. This removes several objectors to the settlement – few others remain, most notably American International Group Inc (NYSE:AIG). Note that the hedge fund that started the objection process, Walnut Creek (Baupost Group), already withdrew its objection to the deal.

Objectors hope to get a larger settlement amount and have been challenging The Bank of New York Mellon Corporation (NYSE:BK)’s conduct as trustee in an attempt to overturn the deal. There has been significant overhang on Bank of America Corp (NYSE:BAC)’s stock because of fears about this settlement being overturned and this should reduce some of those concerns.

  • New York Supreme Court has scheduled a hearing beginning on May 30th regarding the settlement. The court is determining whether the trustee, Bank of New York Mellon, acted properly in reaching a settlement with private label investors.
  • In a separate litigation matter, MBIA Inc. (NYSE:MBI)’s insurance unit continues to inch closer to bankruptcy. If MBIA Insurance Corp is seized by the New York State Insurance commissioner, it would be easier for Bank of America to enter into a settlement. MBIA seems to have been unwilling to negotiate with the bank.

MBIA Inc. (NYSE:MBI) is suing Bank of America to recover over $3 billion of losses on bonds it insured that were backed by mortgages underwritten by Countrywide.

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