Back to top

BofA's $8.5B Settlement Gets Final Court Nod

Read MoreHide Full Article

Bank of America Corporation (BAC - Free Report) can now heave a sigh of relief as Justice Saliann Scarpulla has approved the bank’s proposed settlement of $8.5 billion, which was put on hold for a long time. The settlement deals with the sale of faulty mortgage-backed securities by Countrywide Financial Corp. prior to the financial crisis.

The distressed mortgage lender was acquired by BofA in 2008. Thereafter, the company has been facing litigations associated with the acquired units.

In 2011, BofA had reached an agreement with investors to pay $8.5 billion for its legacy Countrywide mortgage repurchase and servicing claims. The group of investors included BlackRock Inc. (BLK - Free Report) , American International Group, Inc. (AIG - Free Report) , Pacific Investment Management Co. and MetLife Inc.

The settlement was however resisted by the American International Group on the grounds that The Bank of New York Mellon Corporation (BK - Free Report) – the trustee representing the investors – did not make adequate effort to recover money for the distressed investors.

After a series of hearings, last month Justice Barbara Kapnick, the prior judge of The New York state court in Manhattan was close to approving the settlement. However, on her promotion, Justice Saliann Scarpulla replaced her and the American International Group got the opportunity to seek more time to have itself heard.

Though the American International Group succeeded in delaying the process, the final verdict overruled its claims and sanctioned most clauses of the settlement. The judgment seems reasonable enough as the company held a small proportion of the faulty securities and therefore had to bear comparatively lower losses. The unnecessary delay in the settlement was unfair to other investors with larger stakes, who were waiting for the compensation.

Moreover, Justice Saliann Scarpulla’s decision comes as a respite for BofA as it somewhat eases the burden of legal hassles faced by the company. Moreover, any contrary ruling might have resulted in the company shelling out a larger sum than was initially decided upon.

Despite this development, why has BofA’s stock price lost nearly 2% on the day? The three major U.S. stock indices – NASDAQ Composite, Dow Jones Industrial Average, and S&P 500 – slid nearly 1%. Therefore, the overall negative market sentiment might have restricted BofA’s upward stock price movement.

At present, BofA has a Zacks Rank #3 (Hold).

More from Zacks Analyst Blog

You May Like