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« FLASHBACK - Cramer Screams: "Buy Bank Of America!" | Main | The Zombie Bankers meet the Hellhounds of Abaddon »

More Bad News For Bank Of America - Fraud Liability May Jump $9 Billion If New York Judge Sides With MBIA

BofA will be expected to do a capital raise, and they still have a stake in China Construction Bank, which they have been attempting to offload (reportedly for weeks) for $17 billion.  So they have a couple options before going hat in hand to Geithner for another bailout.

The initial court hearing was late last week.



Bank of America may face billions of dollars more in liability for faulty mortgages if a judge agrees with insurer MBIA that the lender must buy back loans even if the errors didn’t cause a borrower’s default.

If New York Supreme Court Justice Eileen Bransten and judges in similar cases across the country rule that the issue of “causation” doesn’t apply -- meaning it’s enough to show that the loan was improperly made -- it “could significantly impact” Bank of America’s potential costs, the bank said in a regulatory filing this month.

Such court defeats may add as much as $9 billion to what Bank of America owes bond insurers, according to hedge fund Branch Hill Capital, which is betting against its stock and has invested in MBIA. A victory for Armonk, New York-based MBIA may also strengthen claims by mortgage-securities investors that want the Charlotte, North Carolina-based bank to pay more than the $8.5 billion it’s offered them as a settlement.

“You don’t have to wait until you’re in a severe accident before you return the car with bad brakes,” said David Grais, a partner in New York at Grais & Ellsworth LLP who represents investors objecting to the bank’s proposed settlement with Countrywide Financial Corp. mortgage-bond holders.

Hearing Today

Any ruling on the issue, which was to be the subject of a hearing today in state court in Manhattan, may come later than anticipated because the proceeding was postponed until October. The decision may intensify settlement talks between bond insurers like MBIA and other banks that issued securities based on faulty mortgages.

“If they lose that case, then our certainty of getting reimbursed becomes a lot higher,” Dominic Frederico, Assured’s chief executive officer, said in an interview. Bank of America agreed in April to a deal it valued at $1.6 billion with Hamilton, Bermuda-based Assured to settle its mortgage claims.

Since the start of 2010, Bank of America’s cushion for future losses on repurchases of mortgages that never matched their promised quality has ballooned from $4 billion to $17.8 billion even as it made payments in settlements with debt guarantors such as Fannie Mae and Freddie Mac.

Bond Settlement

The bank set aside $14 billion last quarter to cover claims, including the proposed $8.5 billion for the Countrywide- bond settlement reached in June with investors including BlackRock Inc., the Federal Reserve Bank of New York and Pacific Investment Management Co. The deal is being challenged by other bondholders and attorneys general in New York and Delaware.

Its reserves and guidance on how much more it may need are based on several assumptions, though, including the company’s view that losses will only have to be reimbursed if it can be proven “that the alleged representations and warranties breach was the cause of the loss,” the bank said in the Aug. 4 filing with the Securities and Exchange Commission. If courts disagree, “it could significantly impact” the estimate of as much as $5 billion in additional liabilities.

“It could change the playing field,” MBIA Chief Executive Officer Jay Brown said on an Aug. 10 conference call with analysts and investors when asked about the causation issue. It could “have a very significant effect on the ability to rescind or obtain rescissionary damages,” he said. “So, it can affect the view of both parties as to the likely outcome of the trial.”

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Reader Comments (11)

And lest ye forget: after the '08 crisis, MBS investors filed $1T worth of securities fraud claims against the industry. $200B of those have survived 3 years of litigation including motions to dismiss and summary judgment and are teed up for trial. How much of that $200B does BAC account for or disclose? (I got all that from Whalen.)

This is a scumbag company. The other day my girlfriend--who against my fulminating rage actually banks with these fuckers--calls me up saying BAC just stole $10 out of her account saying, with no documentation whatsoever uh, you deposited X in cash when it was, uh, really truly X - $10. Of course the teller is a moron who can't pinpoint jack shit and a myrmidon.

"Expect more of that, more theft," I say. "Bank of America is an incompetently criminal enterprise."

"What do I do?" she sobs.

"Liquidate your account tomorrow and put it in US Bank," I say. "Or silver."

No one fucking listens.
Aug 19, 2011 at 1:09 AM | Unregistered CommenterCheyenne
And they just announced more layoffs tonight...

Bank of America Corp. (BAC) Chief Executive Officer Brian T. Moynihan told his managers at the biggest U.S. lender to expect 3,500 job cuts this quarter.

Some employees have already been informed of the firings, which are in addition to 2,500 reductions made this year, Moynihan said in a memo to staff yesterday.

Aug 19, 2011 at 1:16 AM | Registered CommenterDailyBail
Futures are negative for tomorrow's trading.

Aug 19, 2011 at 1:17 AM | Registered CommenterDailyBail
Watching squawk this AM. Egan is on tellin' it like it really is in EU to the idiots on set. Don't agree with him on all of his proposed fixes, but at least he gets it...

...and ARK may be a complete moron. His fix for Greece? Sell an island or 2. Seriously, he said that. Egan looked at him like he was a cashier at McD's when he explained to ARK why that proposal is beyond riduculous (i.e., not enough assets (or tax increases) in the country to pay the debt)...f'n hilarious...
Aug 19, 2011 at 8:37 AM | Unregistered CommenterJosie
Straight from the NFW file:


Ridley Scott to direct Blade Runner prequel/sequel. BRDC has held up incredibly well for--sheesh--3 decades now and is one of my all-time favorite films. This is awesome news.
Aug 19, 2011 at 11:17 AM | Unregistered CommenterCheyenne
Thanks Josie. I will look for it.
Aug 19, 2011 at 12:57 PM | Registered CommenterDailyBail
I would like to ask knowledgeable individuals a question. (not legal advice per se but what might be expected).

Knowing several people who had purchased their homes through countrywide and later having their mortgages taken over by BOA, what happens if BOA goes under? They have paid their mortgages faithfully and are unaware of what may transpire in the not so distant future. Thanks for any responses.
Aug 19, 2011 at 2:11 PM | Unregistered Commenterjohn
If BofA goes under and the FDIC seizes them, the performing loans, deposits, and other worthwhile elements of the balance sheet would be sold to an acquiring bank (likely JPMorgan, PNC, Wells Fargo or US Bank) and things would go on as normal. There would be no disruption. It's the hundreds of billions of non-performing assets that the FDIC would take on.
Aug 19, 2011 at 4:06 PM | Registered CommenterDailyBail
If Bank of America goes under and is seized by the FDIC, what happens to the bond holders? Are they just SOL?
Aug 23, 2011 at 12:44 PM | Unregistered CommenterAmy
Bond holders would be smacked. But it's not going to happen. The FDIC can't handle a seizure as large as BofA.
Aug 23, 2011 at 1:19 PM | Registered CommenterDailyBail
The whole purpose of our campaign is to expose the breach the behavior of the CEO to act as a gypsy and lowlife to chase me for 14 grand taking police off the streets for his personal little gain, Poor 14 million Dollar Man does he not realize how low life he looks

Sent frm: Super
Jul 9, 2014 at 5:14 PM | Unregistered CommenterSuper

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