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AIG Seeks Delay in $8.5B Bank of America Deal

FEB 5, 2014 11:47am ET
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American International Group Inc. and other objectors to Bank of America Corp.'s $8.5 billion settlement with mortgage-bond investors including BlackRock Inc. asked a judge to delay entry of a ruling approving the pact.

New York State Supreme Court Justice Saliann Scarpulla yesterday scheduled a Feb. 19 hearing on the objectors' request to stay entry of a decision from last week approving most of the settlement, Kathy Patrick, a lawyer for BlackRock and the other investors who negotiated the settlement, said in an email. Final entry of the judgment was scheduled for Feb. 7.

Scarpulla took over the case from Justice Barbara Kapnick, who was promoted to an appeals court last month. Kapnick on Jan. 31 approved most of the Charlotte-based bank's 2011 settlement with investors in more than 500 mortgage-security trusts, including BlackRock and Pacific Investment Management Co., while allowing loan-modification claims to continue.

The settlement is part of Bank of America Chief Executive Officer Brian Moynihan's efforts to resolve liabilities tied to faulty mortgages that have cost the company at least $50 billion since the financial crisis, most inherited from its 2008 purchase of Countrywide Financial Corp.

The objectors filed court papers yesterday asking Scarpulla to stay the entry of Kapnick's ruling, saying the modified-loan claims are a "significant piece" of the settlement and that the ruling leaves open questions as to how much will go to the trusts, which trusts are covered and how the funds will be divided.

Scarpulla didn't rule on the stay request. The judgment must be formally entered before any appeals can begin.

Entry of a final judgment in the case "could leave the trust beneficiaries with no choice but to commence new, duplicative actions in order to protect their rights," Mark C. Zauderer, an attorney for the objectors, said in a court filing. "In order to avoid this inefficient result, the entry of final judgment should be stayed so that all issues relating to the enforcement or effectuation of the settlement may be litigated in this action."

Kenneth E. Warner, an attorney for BlackRock and the other investors who support the settlement, said the request for a stay has no merit and "will be greatly prejudicial to the thousands of certificate holders who are waiting for the settlement proceeds to be distributed."

Bank of New York Mellon Corp., the trustee for more than 500 residential mortgage-securitization trusts, filed a petition in June 2011 seeking approval of the settlement, which aimed to resolve claims that the loans backing the bonds didn't meet their promised quality. AIG and other objectors asked the court to reject the deal, which it said resolves claims for "pennies on the dollar" while investor losses totaled more than $100 billion.

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed and the crisis swept up lenders and investment banks as the market for the securities evaporated.

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