Bloomberg News

BofA Mortgage Deal ‘Insufficient,’ Western & Southern Says

July 29, 2011

(Updates with Bank of America comment in seventh paragraph.)

July 29 (Bloomberg) -- Bank of America Corp.’s proposed $8.5 billion mortgage-bond settlement with investors drew more criticism, as Western & Southern Life Insurance Co. called the deal “wholly insufficient.”

The settlement is “a sweetheart deal” and an attempt to “sweep aside the enormous liability” Bank of America faces from investors, Western & Southern said in a court filing today in New York State Supreme Court.

“In addition to the wholly inadequate recovery provided to injured investors, Western & Southern has identified several significant issues that raise serious questions about the fairness of the proposed settlement,” the company said.

The settlement, which will be considered for approval by a state judge, calls for Bank of America to pay $8.5 billion to resolve claims from investors in 530 residential mortgage- securitization trusts. The deal was reached with a group of institutional investors and would apply to investors outside that group.

Western & Southern said in the filing that it’s seeking to intervene in the case so it can obtain information about the settlement and evaluate it.

Forcing the Deal

The institutional investors, including Blackrock Inc. and Pacific Investment Management Co. LLC, are forcing the deal onto other investors “who have had no say in the structuring of, or the terms of the proposed settlement,” Western & Southern said.

Kathy Patrick, a lawyer representing the institutional investors, didn’t respond to an e-mail seeking comment. In an interview earlier this month, she called the settlement “entirely fair.”

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in an e-mailed statement that the trustee for the mortgage-bond trusts, Bank of New York Mellon Corp., has outlined the due diligence it conducted “to ensure a fair and reasonable settlement.”

“The agreement anticipated and provided for objections by those pursuing separate agendas, and we look forward to those issues being addressed by the court during its scheduled proceedings in this matter,” Grayson said.

‘Serious Questions’

Other investors are also questioning the settlement. A group of pension funds said they have “serious questions” about the fairness of the deal, which they said could provide a windfall to some investors, according to a court filing. A group of Federal Home Loan Banks said their interests may not have been protected in the negotiations. They question expert reports used to support the deal and said an estimate of a reasonable settlement could range from $22 billion to $27.5 billion or more.

New York Attorney General Eric Schneiderman, meanwhile, is considering whether to intervene in the case, he said in a July 13 letter. He has “an ongoing investigation into matters directly related” to the proceeding.

The case is In the matter of Bank of New York Mellon, 651786/2011, New York state Supreme Court, New York County (Manhattan).

--With assistance from Karen Freifeld in New York. Editors: Andrew Dunn, Stephen Farr

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

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


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