Bloomberg News

BofA Mortgage Securities Accord Data Sought by N.Y. State

July 13, 2011

(Updates with new court filing in 20th paragraph.)

July 13 (Bloomberg) -- Bank of America Corp.’s proposed $8.5 billion settlement over mortgage-securitization trusts is being probed by New York Attorney General Eric Schneiderman, who is seeking client information from more than 20 companies.

Schneiderman’s office sent letters dated July 7 to the companies, including Goldman Sachs Group Inc., BlackRock Inc. and TCW Group Inc., regarding their participation in Bank of America’s proposed deal. He is asking for the information by tomorrow.

The information was requested in connection with an investigation by the office “into certain matters related to securitization of residential mortgages,” according to the letters.

Investment managers were asked to identify clients affiliated with New York state government entities and public authorities, as well as nonprofit or charitable corporations that invested in the 530 residential mortgage-securitization trusts established from 2004 to 2008, according to copies of the letters obtained by Bloomberg News.

The letters also request the total par amount and current market value of all securities issued by the trusts covered in the settlement agreement for each client that meets the criteria.

Bank of New York Mellon Corp., as trustee of the 530 trusts, filed a petition June 29 in state court in Manhattan seeking approval of the settlement.

Investor Claims

Investors claimed that units of Countrywide Financial Corp. failed to honor contracts, saying they needed to repurchase loans that never matched their promised quality. Charlotte, North Carolina-based Bank of America acquired Countrywide in 2008.

The settlement was supported by a group of 22 bondholders, including Goldman Sachs and BlackRock, both based in New York, and Societe Generale SA’s TCW.

State Supreme Court Justice Barbara R. Kapnick set a hearing on the settlement for Nov. 17.

Bank of New York Mellon is required to give notice of the proposed deal to investors, mortgage companies, ratings companies, bond insurers and underwriters.

Walnut Place LLC and a group of public pension funds have sought to intervene in the deal. The public funds that asked to intervene in the case include the Policemen’s Annuity & Benefit Fund of Chicago, the Westmoreland County Employee Retirement System, City of Grand Rapids General Retirement System and City of Grand Rapids Police and Fire Retirement System.

‘Serious Doubts’

Walnut Place is suing Bank of America in a separate case, seeking to force it to buy back loans.

Bank of New York Mellon, as a trustee and a party to the deal, has conflicts of interest “that raise serious doubts about its motives in negotiating the settlement,” Walnut Place said in a court filing. Bank of New York Mellon negotiated an indemnity from Bank of America that protects the trustee from potential liabilities in excess of earlier agreements, Walnut Place said.

Bank of New York Mellon filed a response July 11, taking no position with respect to Walnut Place’s request to intervene while saying that the court shouldn’t permit the investors to make requests for discovery until hearing objections from other parties. The trustee also asked that no other parties be allowed to intervene in the case for now.

As for its alleged conflicts of interest, Bank of New York Mellon said the governing agreements provided that the trustee be indemnified.

‘Nothing Improper’

“There is nothing improper about a trustee seeking indemnification under these circumstances,” according to the Bank of New York Mellon filing.

The institutional investors also responded July 11 to Walnut Place’s motion to intervene, neither opposing nor consenting to it. At the same time, the investors said Walnut Place’s arguments are “flawed and false.”

“It defies all reason and common sense to suggest that 22 separate institutions -- each of which independently evaluated and chose to support the settlement -- would set aside their own financial interests to benefit Bank of America,” the investors said in their filing.

“Equally implausible is the suggestion that the institutional investors who act as fiduciary investment advisers would abandon the interests of their pension fund, mutual fund and individual investor clients in favor of Bank of America’s,” the investors said.

Filing Today

In a court filing today, Walnut Place said many investors have “serious concerns” that the 22 institutional investors will not adequately protect smaller investors that were not at the negotiating table.

“Indeed, the New York attorney general recently sent letters to most of the 22 self-appointed investors expressing similar concerns,” Walnut Place’s court papers said.

Walnut Place argued against a proposed order from the Bank of New York Mellon to permit investors to intervene as petitioners but not as respondents.

“It would be fundamentally unfair,” the court papers say, “to permit those that agree with the proposed settlement to have full rights as parties but to relegate those that disagree with it to the second-class status of ‘objectors.”

On alleged conflicts of interest by the 22 institutional investors, Walnut Place said that many have “deeply entrenched relationships with Bank of America,” that the bank distributes “hundreds of billions of dollars of new securities each year” and that many of the 22 investors depend on preferential treatment from Bank of America for access to the offerings.

Policemen’s Annuity

In a filing yesterday, the investors opposed the request by the Policemen’s Annuity to intervene in the case, saying its intervention would serve no purpose and wouldn’t be possible under a court-ordered schedule.

Lawrence Grayson, a spokesman for Bank of America, and Kevin Heine, a spokesman for Bank of New York Mellon, declined to comment.

Lauren Passalacqua, a spokeswoman for Schneiderman, declined to comment yesterday. A BlackRock spokeswoman, Bobbie Collins, and Ed Canaday, a Goldman Sachs spokesman, declined to comment immediately. Peter Viles, a spokesman for TCW Group, declined to comment.

Representatives of other companies that received letters who declined to comment included Mary Athridge of Legg Mason Inc., the parent of Western Asset Management Co.; Eric Hardgrove of Nationwide Mutual Insurance Co.; Randall Whitestone of Neuberger Berman Group LLC, the parent of Neuberger Berman Europe Ltd.; John McCool of Teachers Insurance and Annuity Association of America; Bob DeFillippo of Prudential Financial Inc., the parent of Prudential Investment Management Inc.; and Brett Weinberg of Thrivent Financial for Lutherans.

Tennyson Oyler of Pacific Investment Management Co. didn’t return a call seeking comment yesterday.

--With assistance from Jody Shenn, Michael Moore and Brooke Sutherland in New York. Editors: David E. Rovella, Patrick Oster

To contact the reporter on this story: Karen Freifeld in New York State Supreme Court at kfreifeld@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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