Institutional Investors Challenge Secrecy of Bank of America Settlement Negotiations


AIG and other institutional bond investors, which were not part of a proposed $8.5 billion settlement of Bank of America Corp’s mortgage-backed securities liability, complained that the proposed settlement was struck in a “shroud of secrecy.” They have objected to the settlement, want to intervene, and want to review negotiations and documents that led to the proposed settlement, according to Reuters (“Investors want ‘secrecy’ lifted in BofA MBS deal,” by Karen Freifeld).

The parties to the proposed settlement apparently claim that related negotiations and documents are confidential ? i.e., that they should be “shrouded in secrecy.” Hence, AIG’s attorney told the court: “We want to come back to you and ask you to find it’s not confidential.”

On the other hand, one of the parties, Bank of New York Mellon, reportedly says that the months-long negotiations that led to the proposed agreement were not secret.

The settlement would resolve the claims against Bank of America but is reportedly giving the rest of Wall Street nightmares (Forbes article entitled “Wall Street’s New Nightmare”), as the plaintiffs, a consortium of 23 of the world’s largest bond investors, including PIMCO and BlackRock, plan to use the settlement as a template in going after the other Wall Street banks that misrepresented the mortgage-backed securities that were sold to the them.

Bank of America was brought into this litigation by virtue of having bought Countrywide Financial Corp. in 2008. Countrywide, then the largest U.S. mortgage lender, originated, securitized and sold pools of subprime, Alt-A and option ARM mortgages to institutional investors. The plaintiffs allege that Bank of America, via Countrywide, is on the hook to buy back failed mortgages that it misrepresented. That purchase cost BofA more than $30 billion after accounting for lawsuits and writedowns, according to the article.

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