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In yet another setback, Countrywide Financial – acquired by Bank of America Corporation (BAC - Analyst Report) in 2008 – has been sued by American International Group, Inc. (AIG - Analyst Report) for losses worth millions of dollars incurred by the latter. AIG has accused BofA of selling high-risk residential mortgage-backed securities (RMBS).

However, a U.S. District Judge partially dismissed the claim based on the misrepresentation of underwriting practices and deceptive statements. Alongside, the judge brushed aside allegations against underwriters – Merrill Lynch and Bank of America Securities. AIG accused the companies of being aware of the misdeeds at BofA.

Nonetheless, the judge permitted AIG to pursue claims related to fraudulent practices by BofA. This major U.S bank can be sued for making false claims of complying with the underwriting guidelines in its offer document. Further, the court permitted AIG to re-plead its charges against BofA. AIG has been granted permission by the court to claim compensation amounting to more than $7 billion from BofA for the losses incurred.

The case is related to the litigation suit which was filed against BofA in 2011. As per the filing, AIG demanded compensation worth $10 billion from BofA for providing deceptive information regarding the loans underlying the investment. BofA misrepresented loans exceeding $28 billion, which it claimed were issued in accordance with the underlying guidelines. However, AIG countered this by stating that in actuality the guidelines had been abandoned long back.

Of late, BofA has been combating various legal claims from investors who purchased mortgage securities from the bank. To date, BofA has paid over $40 billion in legal settlements related to regulatory and borrower issues associated with the purchase of Countrywide and Merrill Lynch & Co.

BofA recently reached an agreement to settle its legal tussle with MBIA Inc. . As per the agreement, BofA is required to pay nearly $1.6 billion in cash and return $137 million worth of MBIA’s 5.70% senior notes maturing in 2034. Further, the company is required to provide a senior secured credit facility worth $500 million to MBIA Insurance Corp, MBIA’s structured finance division.

In Jan 2013, BofA announced a settlement worth nearly $11.6 billion with Federal National Mortgage Association (FNMA) to end its mortgage related woes. Additionally, in 2011, the company reached an $8.5 billion settlement deal with private investors who had bought the company’s risky MBS.

The pilling litigations are apprehended to mar its overall growth. Further, such suits are expected to elevate the company’s expenses besides tarnishing its image.

Currently, BofA carries a Zacks Rank #3 (Hold).
 

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