Bank Of America To Pay $8.5 Billion To Settle Mortgage (Mis)Representation Suit With BlackRock, Pimco, New York Fed Et Al.

Tyler Durden's picture

Bank of America may be about to part with more money than it has earned since 2008 in what will soon be the biggest financial settlement in the industry to date According to the WSJ, the Charlotte, NC-based bank is preparing to pay $8.5 billion to settle mortgage (mis)representation claims (aka the Mortgage putback issue) brought on by such high profile figures as BlackRock, Pimco, MetLife and, of course, the Federal Reserve, previously discussed on Zero Hedge. "A deal would end a nine-month fight with a group of 22 investors that hold more than $56 billion in mortgage-backed securities at the center of the dispute, including giant money manager BlackRock Inc., insurer MetLife Inc. and the Federal Reserve Bank of New York." Keep in mind that this is actually not good news for the bank, contrary to what the company's stock is doing after hours, as this still keeps the company exposed to a multitude of other rep and warranty litigation (which will now be largely underreserved), not to mention fraudclosure issues, which are totally unrelated, and which will plague the bank for years and years. Lastly, BAC is largley underreserved (see below) for a settlement of this size which means its Tier 1 capital ratio will likely be impacted due to a major outflow of cash.

From the WSJ:

The deal could embolden mutual-fund managers, insurance companies and investment partnerships to go after similar settlements with other major U.S. banks, arguing that billions in loans scooped up before the U.S. housing collapse didn't meet sellers' promises or were improperly managed. Most vulnerable would be Wells Fargo & Co and J.P. Morgan Chase & Co., which along with Bank of America collect loan payments on about half of all outstanding U.S. mortgages.

The dispute between Bank of America and the mortgage investors began last fall when they alleged that securities they bought before the financial crisis from Countrywide Financial Corp. were composed of loans that didn't meet sellers' promises about the quality of the borrowers or the collateral.

While it is still very much unclear what the terms of the settlement are, one thing is certain: BofA acquisition of Countrywide for $4 billion is rapidly becoming the worst purchase in the history of M&A. Luckily, Angelo "Agent Orange" Mozillo, has a permanent get out of jail card. One wonders just what dirty secrets old Angelo know about the housing market (or regulators' sexual lifestyles) that not one regulatory agency or DA office is willing to go after him?

And, as often happens, we were quite correct when we speculated back in January that Bank of America is woefully underreserved for this development:

Can You Spell U-N-D-E-R-R-E-S-E-R-V-E-D? If Not, Here Is A Visualization Aid

Following today's news of an imminent lawsuit to be filed against Bank
of America by such entities as the New York Fed (which, by the way, it
had to do, and not voluntarily, but merely as a function of its
fiduciary duty to taxpayers through its Maiden Lane holdings, managed,
conveniently enough, by Bank of America minority holding BlackRock)
everyone promptly has taken a quick look back at the bank's earnings
presentation, and especially one little piece of data: the putback
reserve. Taking a quick look a page 23 on the pdf we read: "3Q10 reps and warranties provision of $872M is $376M lower than 2Q10,
as the current quarter included an increase in expected repurchases
from GSEs while 2Q10 included additional provision for monolines." So
how does this stack up relative to the $47 billion in putback demands by
such legal "dilettantes" as Bill Gross, Bill Dudley and Larry Fink? We
have created the chart below to assist in that particular question. We
are also confident that with each passing day we will have to add to the
red-shaded area as more and more putback lawsuits come out of the
woodwork. And as to where the deficiency amount will have to be funded
from? Think cold, hard cash. The same cash that until recently would
have been on the "sidelines."

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bigwavedave's picture

what no jailtime?

Careless Whisper's picture

here is the bank of america "put-back" issue explained for the learning impaired (starts @ 2: 55)


Ahmeexnal's picture

MethLife....another disaster about to go BOOM.

max2205's picture

I see Obamarama giving BAC a presidential pardon so we can forget by the 2012 elections

blunderdog's picture

Wow.  I love a woman who really knows how to enunciate like that!

Never_Put_Down's picture

Nice read blunderdog, I was reading her lips all the way...every enunciation, every nuance

WonderDawg's picture

She was reading that way so that even mainstream "journalists" could understand.

mr. mirbach's picture

I'm sending that link to my Congress Critters! They may have to watch it 7 or 8 times before they understand, or more.

Sausagemaker's picture

"Last time a saw a mouth like that it had a hook in it!"

The Fonz's picture

Wonder how much my FAZ is going up tomorro? :P

quintago's picture

Reps and Warranties? Are those like taxpayer bailouts?

Logans_Run's picture

I was listening to John Mellencamp's "Baby You Make It Hurt so Good" while reading your post, got lost in your avatar...uh....what was it you said?

The Fonz's picture

He said "Jiggly boobs, jiggly boobs, boobs that jiggle!"

johngaltfla's picture

Just a quick reminder from IRA's Chris Whalen this morning:

BAC settlement does NOT cover "Investors’ securities and fraud claims and certain other claims"

apberusdisvet's picture

Geithner will channel Paulson, and voila:  TARP II

gmrpeabody's picture

yah really, they aren't paying for anything.

WE ARE!!!!

WestVillageIdiot's picture

And why is that motherfucker Mozilo not in prison?

Cdad's picture

His skin tone frightened the other prisoners.

The Fonz's picture

That dude goes to jail and I guarantee he is going to be picking up a lot of soap from the floor :P I cannot even concieve of what his nickname might be :)

krispkritter's picture

"Mozillo 'My Bitch' Pillow"..."So Mo, how do you like Federal 'Pound Me In the Ass Prison'?"

blunderdog's picture

He didn't need an orange jumpsuit.

hugovanderbubble's picture


Bank Of America Price Target = 5.90$

0.4x P/ BV = if Price to book value its useful..and representative with a proper accounting and audit Real Estate methodology

WilliamShatner's picture

My January puts in B of A are gonna be worth a ton of $$ soon.


Mr Lennon Hendrix's picture

BAC up after hours....LOL!!!!!  Party at the Hamptons this weekend!  Bring a mask!

Juvenile - Back That Ass Up:
Never_Put_Down's picture

Only $8.5 Billion? Chump change, let's party like it was 1999

Mr Lennon Hendrix's picture

$8.5 billion can become $85 billion with fractional reserve lending!  That is a lot of liability to cover.

doomandbloom's picture

so..all settled now.....

we start buying from tomorrow?

Franken_Stein's picture


From your bank accounts aka the cash reserve.

From excess reserves of BofA with the Fed.


WestVillageIdiot's picture

Bank of America will be sacrificed.  That was decided long ago.  It is not a NYC bank, like JP Morgan.  It is out of Charlotte, NC.  They will be split up as the lamb at the luncheon.  The rest will say, "look how responsible we all are".  Goldman, Citi and JPM will laugh their asses off at the gullibility of the American sheep.

krispkritter's picture

And they wouldn't change the name to "Banc of Amerika"...

sheep92's picture

This is actually bullish for the market as 8.5 billion dollars sitting around doing nothing are now going to folks who might put it to use. BAC, who knows or cares.

WestVillageIdiot's picture

I have downgraded Dick Bove to subhuman cunt, from cunt. 

candyman's picture

This must be the reason Dick Bove upgraded this POS but hid this little nugget from us all. This guys on FIRE!

richard in norway's picture

i'm confused, 8.5 billion is a lot of money, was the market really expecting a worse result. i'm surprised that the lawsuit got this far

Orly's picture

I think the joke here is that mortgage fraud is worth trillions of dollars, yet no one has claimed responsibility, much less gone to prison.

$8.5B used to be a lot of money...and I'm sorry to say this but...please try to keep up.

The Fonz's picture

Your doing fine Richard. Being able to admit what you don't understand will keep you kicking in this business. In fact it might be more important that what you DO understand.  Also I cannot fathom why B of A is up afterhours.... uh algos? what? What don't we know?

candyman's picture

This must be the reason Dick Bove upgraded this POS but hid this little nugget from us all.

Cdad's picture

Panic buying in the AH's gone.

The same cash that until recently would have been on the "sidelines."


WestVillageIdiot's picture

On the day BAC bought Countrywide the stock was at $38 per share.  BRAVO!

YesWeKahn's picture

Time to celebrate, at least it's not 80 billion. Let's rally the stock market.

duncecap rack's picture

I was just reading an great article last night linked to from Jesse's about ,among other things, how the private sector was much more effective at effecting justice for financial crimes then federal regulators and today there is this proof of the thesis. It is refreshing to see the cabal being hit where it hurts but it would be much, much better if they got a piece of mr. Orange.

buzzsaw99's picture

If they went after Tangelo for the fraud and pump and dump schemes that would set a bad precedent.