Back to the capital-raising drawing board for beleaguered Bank of America as Sheila Bair puts the kabash on the previously agreed-upon settlement for Countrywide's fraudulently packaged mortgage bonds.
The final decision, due in November, is up to the courts, but the FDIC's opposition is not good news, and could end up costing BofA more than the expected $8.5 billion, as you will read below, further cementing Ken Lewis' $5 billion purchase of Countrywide, as the worst corporate takeover in U.S. history.
The Federal Deposit Insurance Corp. objected to Bank of America's proposed $8.5 billion mortgage-bond settlement with investors, joining investors and states that are challenging the agreement.
The FDIC, the receiver for failed banks, owns securities covered by the settlement and said it doesn’t have enough information to evaluate the accord, according to a filing today in federal court in Manhattan.
Under the agreement, Bank of America would pay $8.5 billion to resolve claims from investors in Countrywide Financial Corp. mortgage bonds. The settlement was negotiated with a group of institutional investors, including BlackRock and PIMCO, and would apply to investors outside that group.
Bank of New York Mellon, the trustee for the mortgage-securitization trusts covered by the agreement, has asked a New York state judge to approve the settlement in November. An investor group is trying to move the case to federal court, which Bank of New York opposes.
Investors that would be bound by the settlement, including American International Group Inc., have criticized the deal and Bank of New York’s role representing investors in the mortgage bonds. New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have sought to intervene in the case and asked the court to reject it.
The FDIC’s involvement may make it more difficult for Charlotte, North Carolina-based Bank of America to get approval for the settlement, said Bert Ely, a bank-industry consultant in Alexandria, Virginia.
“You would think as a regulator or as an investor or both that they would be kept apprised of what was going on,” he said. “Any time you hold up a deal it becomes more likely it doesn’t happen.”
If the settlement doesn’t get court approval and Bank of America goes back to the negotiating table, it will become more expensive for the bank, Paul Miller, an analyst at FBR Capital Markets, said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene.
FDIC Objection Letter...