OPINION: Bank of America Must Be Tired of Lawsuits

Bank of America’s Board of Directors approved what is perhaps the largest settlement in the history of banking on Wednesday, agreeing to pay a group of 22 investors, mostly made up of financial firms, $8.5 billion.

Along with news of the BofA settlement, the bank also announced that it plans to set aside another $12.1 billion to settle similar claims, which stem from the 2008 subprime mortgage crisis. Now I am not an analyst or follow Bank of America other than the regular headline, but I remember BofA agreed to settle another lawsuit arising out of its Countrywide acquisistion for 12.8 billion dollars. Those two losses alone add up to over $30 billion dollars in settlements, so the $400 million to settle another case, and legal fees are a mere drops in the bucket. So one rightfully may ask why in the world did they buy Countrywide, and what happened to the mortgages themselves (the assets)? It reminds me of the S&L crisis in the late 1980′s where the taxpayer allegedly took a bath from all the bad loans made by the S&L’s, but some select few with cash ended up buying deeply discounted assets and made a killing. If BofA is losing $30 Billion dollars who is on the other side of the bet making a similar sum? And who are the “bookies” who are making their percentages from both sides. Are you thinking Webb doesn’t understand high finance? Maybe, and maybe somebody who doesn’t understand high finance should be looking at this transaction and asking is money just moving around from one ivory tower to another. How is BofA going to make up $30 Billion dollars?

To be clear, this BofA settlement, along with those that, were in the past, and appear to be in the bank’s future, are tied to its 2008 acquisition of Countrywide Financial, which was a big player in the collapse of the financial industry, but we are not reading about the other players and how they got rescued or “layed off” the spread.

The group of 22 investors who now will receive over $12 Billion Dollars from BofA had written a letter to the bank, accusing it and Countrywide of knowingly failing to inform investors that the mortgages were not of promised quality. In their request for a full refund ($47 billion), they also alleged that Bank of America failed to foreclose on defaulted mortgages in favor of raking in service fees. Must have been one heck of a letter!

How does the stock market react to the billions BofA will have to pay? Bank of America’s stock seems to be up in the wake of the announcement, so it’s not completely clear how this will impact the ordinary person, but it has to come from somewhere.

And the 22 companies who wrote the letter what are they going to do with the money? I am willing to guess it will not trickle down to individual clients who lost pensions or took a hit on their mutual funds. It might just find its way into salaries, bonuses, and political contributions.

Bottom line if I were BofA, yes, I would be tired of lawsuits, but I might seek a second opinion before I settled anymore. It seems they are taking all the blows and not dishing any out. Especially if the New York players are just using the aftermath of the housing crisis as way to fatten their wallets at the expense of those who were actually putting their necks on the line. It is hard to believe that these sophisticated investors who bought billions of dollars worth of mortgages didn’t know when they were buying or didn’t care because they were just passing them on as well.

Just a few random thoughts from someone who tries to make sense out of nonsense.