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Today is the day that Bank of America (NYSE: BAC ) begins the journey toward having its $8.5 billion settlement with 22 institutional investors blessed or dismissed by New York State Supreme Court Justice Barbara Kapnick. This is a big deal for B of A, since what evolves in that courtroom could ostensibly cause more pandemonium to break out over its responsibilities concerning Countrywide and its big pot of crummy mortgage loans.
A stunning run last week saw Bank of America and its peers either bumping up against 52-week highs or -- in the case of B of A -- surpassing them. An hour into this trading week, things don't look quite as good, but it's early yet. While Wells Fargo (NYSE: WFC ) , which took a bit of a dip on Friday, seems to be recovering, JPMorgan Chase (NYSE: JPM ) and B of A are dropping. For Bank of America, at least, the decrease in share price is likely a reflection of investor nervousness over the outcome of this case.
Serious implications for B of A
As B of A watchers know, the issue of successor liability on the part of the bank for the past sins of its 2008 acquisition Countrywide Financial could either set the big bank on the path to putting this chapter behind it, or paying out billions more than it planned to for this -- and possibly other -- disputes regarding soured mortgage-backed securities packed with Countrywide loans.
Heavily involved in this issue is AIG (NYSE: AIG ) , the mega insurer which blames Bank of America for at least $28 billion worth of mortgage bonds gone bad. Even though many other large investors have dropped their objections to the $8.5 billion settlement, AIG refuses to do so, and it will have its say in court as well.
And so, Bank of America stock will likely suffer today, as these dramas play out in a Manhattan courtroom. An important day for B of A promises to be a real nail-biter for its investors, too.
Could the outcome of Bank of America's big settlement erase all the gains the big bank has made over the past year? While that seems unlikely, there is no doubt that there are still significant challenges still ahead,which is why it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.