Money Matters, Simplified.
Bank of America nears $8.5 billion on securities refund
by Rahul K. Chaudhary - June 29, 2011 - comments
The United States’ largest bank (assets), BofA is ready to pay an $8.5 billion in damages claim, the largest ever paid by any banking association, to its investors who lost their money on bank’s security backed mortgages.
In a deal likely to resolve its disputes with a group of influential investors that endured financial loss on securities backed by mortgage, the Bank of America is nearing an $8.5 billion reimbursement to its investors in order to settle their damages claims.
The deal will reportedly encourage investors having mortgage-backed securities with overflowing home loans to file claims against other leading mortgage providers including JPMorgan and Wells Fargo. These home loans are now getting toxic for their holders.
Deal would by far benefit the revolting investors
If the settlement sees the light of the day, it will satisfy its revolting investors by being the largest damages payment ever in banking fraternity.
However, the deal would only be inked after an approval by the bank’s board of directors, which gathered to discuss it Tuesday.
Matt McCormick, a portfolio counsellor at Cincinnati’s Bahl & Gaynor Investment Company said that for an investor, this deal is like a lottery ticket, and not playing is the only way to lose from here. This is likely to be the first settlement coming after a long period of inactivity, he added.
BofA keen on repurchasing the claims
The news of a potential agreement did wonders to BofA’s share’s values. The shares inflated by 3.5 percent from their earlier $10.82. However, they later eased out to trade near $10.95 before closing, rising by nearly 1 percent.
BofA, America’s largest bank in terms of assets, has long been fighting damages claimed by a 22-investor group over the securities related to home loans, a package that the bank sold ahead of the financial crisis.
This investor list reads MetLife Inc, BlackRock Inc and New York’s Federal Reserve Bank. The group, after facing financial crisis, had warned BofA of a legal action, but delayed a court trial till earlier this year hoping for a settlement negotiation.
While BofA was not directly reachable for comments, BlackRock declined the same.
The potential settlement by the Bank of America goes beyond the issue raised by a particular group of investors, and it is likely to resolve ‘significant aspects’ of its coverage to repurchase the claims from other private investors.
The reimbursement will probably exceed BofA’s income for the past three years. It could even triple the $2.5 billion amount that the bank paid for the Countrywide Financial Corp. in 2008. Countrywide Financial Corp was the largest mortgage provider in the United States at that time.
Bank all set for ‘hand-to-hand combat’
Brian Moynihan, Bank of America’s Chief Executive has said that BofA would challenge any repurchase issues, and dubbed the process as "hand-to-hand combat."
But as the bank entered into settlement with bond insurer and the two government-supported mortgage investment firms, Moynihan said the bank would settle when combating would suggest less for shareholders.
Earlier in January, the Bank of America had declared a $2.8 billion claim-settlement with the mortgage finance providers, Freddie Mac and Fannie Mae, covering almost all of their outstanding claims for mortgage repurchase.
In April, the bank confirmed a $1.6 billion settlement Assured Guaranty Ltd, the bond insurer that claimed the bank guilty for bad underwriting by Countrywide.