Revisiting Bank of America's (NYSE:BAC) Recent Countrywide Settlement
The good thing about associating with those more knowledgeable than you is that they will set you straight. That's exactly what happened after my last article Did Bank of America Just Effectively Limit Its Countrywide Liabilities? Christian Herzeca, who I mentioned was one of the articulate defenders of MBIA (NYSE:MBI) in its dispute with BAC, was kind enough to point out a glaring error in my analysis: the recent $500 million Countrywide settlement was a securities claims issue, not a contract/fraud claims issue. Going back to the text of the release made his point clear:
The first of these class action lawsuits was filed in November 2007, and they collectively concern the disclosures that were made in connection with 429 Countrywide RMBS offerings issued from 2005 through 2007. The original principal balance of the RMBS involved in these cases exceeded $350 billion, and the unpaid principal balance of these securities as of February 2013 (excluding securities that are the subject of individual or threatened actions) was $95 billion.
This settlement was about disclosures made marketing the deal, not about BAC's representation and warranties which lie at the heart of the Article 77 dispute. So, it appears the answer to my original article's title is: no. The recent settlement did not effectively limit Countrywide's liabilities.
The key questions that still remain in the Gibbs & Bruns settlement are whether the settlement will be approved, and if not what happens next? Have hedge funds amassed enough bonds in order to meet the 25% threshold has some like Herzeca surmise? Or, will litigation efforts fizzle? We should have a better idea in about a month after the Article 77 proceedings.
Additional disclosure: I am long personally and funds that I manage own Class A Bank of America warrants.