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Reports: New York AG Eric Schneiderman Investigates BofA Settlement

New York Attorney General Eric Schneiderman is investigating financial services firm Bank of America Corp.'s (BAC) $8.5 billion settlement with a group of high-profile holders of mortgage-backed securities, according to reports on Tuesday. Schneiderman is said to be inquiring whether public agencies or state affiliated pension funds were included in the settlement.

According to reports, the attorney general's office has asked nearly all of the 22 investment managers included in the settlement to provide details of clients in the 530 bond deals covered by the settlement. The information was sought vide letters dated July 7, and the information is to be produced by July 14.

A group of institutional investors, who were not part of the settlement, have already sought to challenge the settlement that Bank of America reached last week with 22 large bond investors to settle mis-selling claims over mortgage-backed securities that were bought before the sub-prime crisis.

According to court papers filed a week ago in New York State Supreme Court in Manhattan, the investors, collectively known as Walnut Place, said the settlement was inadequate and was unfair to other investors. Walnut Place charged Bank of New York Mellon (BK), trustee for the bondholders covered by the settlement, of not acting fairly while negotiating the settlement.

Bank of America agreed in late June to pay $8.5 billion to settle claims by a group of 22 investors who lost money on mortgage-backed securities that were purchased from its unit Countrywide Financial Corp. before the sub-prime crisis.

The group of investors including Federal Reserve Bank of New York, Allianz SE's (AZSEY.PK) Pacific Investment Management Co. (Pimco), BlackRock Inc. (BLK) and MetLife Inc. (MET), has been in a lawsuit with BofA on those securities.

The settlement, which covered 530 trusts, is the largest of its kind by a financial firm to date, and requires approval by New York State Supreme Court Justice Barbara Kapnick in Manhattan.

Bank of America also agreed to provide an additional $5.5 billion in the second quarter for representations and warranties exposure. With the settlement and additional mortgage-related costs, the company expects to report net loss for the second quarter of $8.6 billion to $9.1 billion, or $0.88 to $0.93 per share. This includes a goodwill impairment charge of $2.6 billion.

BAC closed Tuesday's regular trading session at $10.21, down $0.14 or 1.35 percent on a volume of 145.16 million shares.

by RTT Staff Writer

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