BofA and the bond insurers: Time to start talking settlement?Bank of America's legal advisers are sort of like those chess masters in the parks of New York City, playing 10 games at the same time. That's how multidimensional BofA's litigation problems are. But the chess guys have it easy compared to the bank's lawyers. BofA isn't sitting across the board from eager yet overmatched amateurs; it's playing equally talented opponents. Even more worrisome, a mistake in one game could have disastrous consequences in all of the others. It's hard to even keep track of all of the nightmare scenarios that Gary Lynch and his outside counsel have to play out before they make their moves. A ruling Monday by New York State Supreme Court Justice Eileen Bransten in MBIA's case against Countrywide doesn't seem, on its face, to be a game-changer. Bransten denied BofA's motion to sever and consolidate claims by MBIA and three other bond insurers that Bank of America is Countrywide's legal successor, and is thus liable for judgments related to Countrywide mortgage-backed securities. The judge agreed with BofA that the monolines' successor liability claims were essentially identical, but she said it wouldn't be fair to MBIA if she consolidated the cases, since MBIA is ready start taking depositions on successor liability and the other bond insurers aren't. "MBIA has completed greater discovery than Syncora, [Financial Guaranty], and Ambac, and stands to wait the greatest duration of time should the court sever and consolidate the successor liability claims," Bransten wrote. "The court finds that MBIA has posited a sufficient showing of prejudice to deny in part [BofA's] motion." The judge said that after MBIA had completed discovery and teed up a summary judgment motion, she'd reconsider consolidating the other bond insurers' cases. But if you're thinking this is a mere procedural ruling, you're not remembering all of the chessboards. The question of Bank of America's successor liability for Countrywide looms over all of the bank's MBS litigation. If BofA isn't liable then the bank can't be stuck with more than about $4.5 billion in Countrywide MBS losses, since that's all that remains of segregated Countrywide assets. If, however, BofA has successor liability, it's on the hook for all of Countrywide's MBS mistakes. That uncertainty limited BofA's proposed $8.5 billion payout to Countrywide MBS investors; one of the expert reports Bank of New York Mellon (the Countrywide MBS trustee) submitted in support of the proposed settlement was an analysis that concluded BofA probably isn't liable as Countrywide's successor. U.S. District Judge Mariana Pfaelzer, who's overseeing the Countrywide MBS multidistrict litigation consolidated in Los Angeles federal court, also concluded in a preliminary ruling that BofA doesn't have successor liability. Bransten, on the other hand, has been quite receptive to MBIA's arguments. She's already issued key rulings on questions of statistical sampling of the underlying mortgage loans and on simultaneous fraud and contract claims by the monolines. She's also already refused to dismiss the bond insurers' successor liability claims on a preliminary motion. BofA, in other words, is taking a big risk if it permits Bransten to reach a decision on successor liability with a full evidentiary record before her. MBIA is prepared to wade into depositions of BofA officials, with the goal of getting a summary judgment motion on successor liability to the judge in the next six months. So now might be a good time for Bank of America to think seriously about reaching a deal with MBIA and the other bond insurers. Does the bank really want to wait for more bad news from Bransten, who's also poised to rule on whether the bond insurers can assert put-back claims for every deficient mortgage loan in the pools underlying Countrywide MBS? Or does it make sense to call a draw before a checkmate in that game wipes out potential defenses elsewhere? http://newsandinsight.thomsonreuters.com/Legal/...odes+CONTAINS+'ANV' |
Thread abonnieren
