Monday was (another) dreadful day for Bank of America. The bank’s shares closed at a two-year low, thanks in part to AIG’s double whammy: a $10 billion fraud suit against BofA and the insurer’s simultaneous motion to intervene in opposition to BofA’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities noteholders. Bank of America and Countrywide’s securitization trustee, Bank of New York Mellon, thought the $8.5 billion deal would put their MBS woes behind them. Instead the proposed settlement seems to have made the two banks into bigger targets than they were before reaching an agreement with 22 big MBS investors.
Before Thursday night, opposition to Bank of America’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities investors consisted of a handful of investor groups represented by a handful of law firms. Even if you counted the six Federal Home Loan Banks that have moved to intervene but haven’t yet gone on record opposing the deal, intervenors represented less than 7 percent of all Countrywide MBS noteholders. The 22 gargantuan institutional investors that negotiated the settlement were a much more potent force.
The hearing scheduled to take place tomorrow before Manhattan state supreme court judge Barbara Kapnick could turn out to be a straight-forward affair. The judge could simply hear brief arguments on whether to expedite discovery on Bank of America’s proposed $8.5 billion settlement of Countrywide MBS noteholders’ breach-of-warranty claims, issue a ruling, and call it a day. Given that this will be the first time that the architects of the deal — Mayer Brown for Bank of New York Mellon, the MBS trustee; Gibbs & Bruns for a group of 22 major institutional investors ; and Wachtell, Lipton, Rosen & Katz for BofA — will be gathered in the same room with the small but feisty group of lawyers opposing the settlement, I’m hoping for some heated rhetoric, at the very least. Remember, this hearing is the first chance for these lawyers to register their positions with Judge Kapnick. It’s going to be very interesting to see what each of them make of that opportunity.
As Bank of America’s proposed $8.5 billion deal to resolve put-back claims by Countrywide mortgage-backed certificate holders comes under increased scrutiny, including a new inquiry by New York attorney general Eric Schneiderman and two newly-filed objections to the deal by major investor groups, some very intriguing news has emerged about Grais & Ellsworth, the prominent MBS investors’ firm that’s leading the charge against the BofA settlement.