Bank of America: CEO Moynihan Blinks
Last year, Bank of America CEO Brian Moynihan said that he would fight lawsuits over disputed mortgage-backed securities. His "day-to-day, hand-to-hand combat" has concluded with a white surrender flag and a fat $8.5 billion settlement.
A group of 22 investors, led by BlackRock, MetLife, PIMCO and the Federal Reserve Bank of New York, claimed that the Countrywide, the once-massive mortgage company, failed to meet underwriting standards when it created $105 billion of mortgage-backed securities and then failed to properly service the loans once they were packaged for sale to investors. BofA was on the hook for these deals after it purchased Countrywide in 2008 for a mind-numbing $4 billion.
When these claims initially emerged last year, Moynihan, a lawyer by training, said that the bank would "not just do a settlement to move the matter behind us." Me thinks that someone got to Moynihan -- perhaps the incoming new General Counsel Gary Lynch -- and laid it out this way: "Brian, do you want to fight this, keep the bank in the headlines for months and potentially lose, or do you want to write a check and make this go away?"
Um, make it go away, please. Or as Moynihan said earlier this month: "There's a point where fighting doesn't have any value."
To make it really go away, the settlement, which is subject to court approval, will expand beyond the original group and cover hundreds of trusts with original principal balances of $424 billion. The settlement will also mean a hit to BofA's bottom line, as the bank is expected to report a second-quarter loss of $8.6 - $9.1 billion. To fund that loss, a reserve of $14 billion has been set aside. Excluding the settlement and other charges, the bank expects to post a quarterly loss of $3.2 billion to $3.7 billion.
But for Moynihan, the episode appears to be over and the price may be well worth it.
Image by Flickr User Erix!, CC 2.0
