Objectors to the settlement, AIG in particular, have merit in their argument that there was a conflict of interest among those who reached the 8.5 billion settlement.
June 08,2013 : AIG argued on Tuesday that a proposed $ 8.5 billion settlement between Bank of America Corp and the investors in Countrywide Financial Corp mortgage backed securities was inadequate. The arguments came in the second day of hearing before, Justice Barbara Kapnick in New York State Court on whether to approve the 2011 settlement. Bank of America had rescued Countrywide Financial Corp at the height of the financial crisis in 2008 and agreed in 2011 to settle with investors who said Countrywide had misrepresented their mortgages underlying its securities.
Daniel Reilly, representing AIG asked said the investors had first asked for $ 50 billion dollars. “Why did that number crater from fifty billion dollars down to eight.”? Daniel Reilly asked in his opening arguments on Tuesday. Reilly, of the law firm Reilly Pozner, also said Bank of America had a strategic relationship with BlackRock Inc., one of the investors who supports the deal, and with Bank of New York Mellon Corp, which is the trustee for 530 trusts holding the securities in question. Other questions raised by Reilly, which the court should take into cognizance are whether the relationships are the reason “why the number craters” and why institutional investors never tried to “seriously consider” suing Bank of America and their meek surrender to a below par deal. Defence Lawyer, Kathy Patrick who negotiated settlement on behalf of the 22 institutional investors, defended the deal in her opening statement. She said the deal was the largest in the history of private litigation and nearly twice the $ 4.8 billion that countrywide was worth. Patrick, of the law firm Gibbs and Burns, representing BlackRock, MetLife, Allianz SE’s Pacific Investment Management Group said, witnesses will testify that Bank of America’s chief risk officer Terry Laughlin had warned the bondholders that Bank of America could put Countrywide Financial Inc into ‘bankruptcy’ leaving investors with less chances or no chances of recovery. Kent Smith of PIMCO will be the first witness to testify before the court. Laughlin, is expected to testify before the New York Court later. Derek Loeser, a lawyer representing the Federal Home Loan Banks of Boston, Chicago who are also objecting the settlement said “The liability is so huge that it was one of the factors that brought down the economy”
Mike Mayo, a senior bank analyst after hearing the initial arguments opined, BoA could be in trouble. He said the objectors to the settlement, have merit in their argument that there was conflict of interest among those who reached the $ 8.5 billion figure. The expert said “The objectors main argument is that the trustee (Bank of NY Mellon) did not deliver on its job to investigate loan files or research the risks with successor liability and was conflicted by its own self interest and its relationship with Bank of America with which it does trustee business, saying that the “banks bank would not sue a bank”. BNY Mellon was interested in preserving its ongoing relationship with Bank of America than do its duty as trustee to the investors who bought Bank of America’s mortgage securities”
The hearing is likely to go beyond June. A ruling could take months after the proceedings are over. Shares of Bank of America skittled by 4 % since Monday, when the hearings began.