Pimco, BlackRock get some satisfaction with BofA settlement

Bank of America Corp., the biggest U.S. bank, agreed to pay $8.5 billion to resolve claims over soured mortgages after bondholders including BlackRock Inc. demanded refunds. The company rose as much as 6.7 percent in New York trading.
The settlement will contribute to a second-quarter loss of $8.6 billion to $9.1 billion, or 88 cents to 93 cents a share, the Charlotte, North Carolina-based bank said today in a statement. Bank of America also said it’s adding $5.5 billion to a liability reserve for future loan-repurchase demands and will record $6.4 billion in other charges including legal costs and a writedown of mortgage-unit goodwill.
“This is progress in that it puts some parameters around what the total loss will be,” said Marty Mosby, a Nashville, Tennessee-based analyst at Guggenheim Securities LLC, which manages more than $100 billion, including Bank of America shares. “It’s not a great thing to pay this much, but it’s not the worst-case scenario either.”
Investors, which also include Pacific Investment Management Co. and the Federal Reserve Bank of New York, demanded in October that Bank of America repurchase home loans that had been packaged into bonds by Countrywide Financial Corp., which it acquired in 2008. The settlement covers 530 mortgage trusts with an original loan balance of $424 billion, the bank said.
Fannie, Freddie
The company’s board met yesterday to discuss the settlement, which still needs court approval. The agreement follows a $3 billion deal announced in January to resolve similar claims from Fannie Mae and Freddie Mac, the U.S.-owned mortgage firms. Bank of America said in April that it agreed to pay an estimated $1.6 billion to resolve claims with bond insurer Assured Guaranty Ltd. (AGO)
“This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty,” Bank of America Chief Executive Officer Brian T. Moynihan said in the statement. The company will continue to “act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide.”
Bank of America declined 19 percent this year through yesterday on the New York Stock Exchange on concern mortgage- related costs, new international capital rules and a slowing U.S. economy will swamp earnings. The shares rose 73 cents to $11.55 at 7:30 a.m. in New York.
Moving Target
Costs tied to faulty mortgages have been a moving target for Moynihan, 51. The firm previously said expenses tied to demands from bond buyers other than Fannie Mae and Freddie Mac could range from zero to as much as $7 billion to $10 billion. In a May regulatory filing, the lender said that estimate may be $11 billion to $14 billion if it made incorrect assumptions regarding the difficulties investors would face making claims.
Countrywide ranked as the top issuer of the securities in 2005, 2006 and 2007, when the worst-performing debt was created, according to Inside MBS & ABS, a newsletter. The lender created $405 billion of the $3.04 trillion of the bonds sold in those years. Bank of America issued $76.9 billion of the securities. Merrill Lynch, which was purchased by the bank at the start of 2009, and First Franklin, which Merrill Lynch bought at the beginning of 2007, issued a combined $116 billion.
Bond insurer MBIA Inc., in suing Bank of America and Countrywide over $21 billion of mortgage securities in New York State Supreme Court, said its reviews had found that 91 percent of defaulted or delinquent loans had “material discrepancies from underwriting guidelines,” such as borrower incomes, credit scores or debt-to-income ratios.
–Bloomberg News–

Related Topics: Bank Of America Corp., BlackRock Inc., Pacific Investment Management Company (Pimco)