Bank of America to AIG: We Have Nothing to Talk About

When the Article 77 hearing in a New York City courtroom went on hiatus earlier this month, Justice Barbara Kapnick told Bank of America (NYSE: BAC  ) and institutional investors like AIG (NYSE: AIG  ) and the Federal Home Loan Banks that they should use the time until the reconvene date of July 8 constructively.

These objectors to the $8.5 billion settlement decided to take this suggestion to heart, sending a letter to settlement trustee Bank of New York Mellon (NYSE: BK  ) , requesting that they and Bank of America sit down and talk. B of A's response? A resounding "No."

Confidence, or bluster?
According to The Wall Street Journal, Bank of America's attorney noted that the current settlement was hard-won, and the bank is not open to new negotiations. Strong words, especially considering that testimony before the hiatus centered on the issue of whether or not B of A was ready to put Countrywide, the source of the crummy loans in the bonds these investors purchased, into bankruptcy.

Such a threat would certainly have colored negotiations, and there was some conflicting testimony on that score. While this issue might not be considered cause to question BONY's "reasonableness" as trustee of the agreement, it certainly puts a different spin on what those talks may have been like, and how pressured the investors felt to reach a settlement.

AIG may have shot itself in the foot
And, yet, Bank of America stands firm, repulsing AIG's efforts to reopen negotiations on the settlement amount, even at the recommendation of Judge Kapnick. Sources at The Journal note that the bank feels certain the settlement will be approved.

Perhaps B of A has good reason to be smug. In truth, the mediation bid by AIG smacks of desperation. The insurer may have interpreted the recommendation to the parties by Judge Kapnick as a heads-up to the objectors that private negotiations might be the best way for them to resolve the matter -- and secure a higher payout, since she would rule only to approve or disapprove the settlement. Considering the fact that AIG rebuffed an invitation back in 2011 to sit in on the negotiations, the insurer's current complaints might be too little, too late.

With so much of the financial industry getting bad press these days, it may be a greedy when others are fearful moment. Not surprisingly, some of Warren Buffett's biggest investments are in the space. In the Motley Fool's free report, "The Stocks Only the Smartest Investors Are Buying," you can learn about a small, under-the-radar bank that's too tiny for Buffett's billions. Too bad, because it has better operating metrics than his favorites. Just click here to keep reading.


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 28, 2013, at 12:05 PM, mrwittyone wrote:

    Ok, lets play this out. BAC settlement is rejected by the judge. BAC puts Countrywide into bK. and AIG gets little to nothing. During this time, the stock drops which would allow the person who just bought 50k Jan. puts to make money, only to have the stock rebound because it eliminates a lot of their liability. Am I wrong?

Add your comment.

DocumentId: 2515365, ~/Articles/ArticleHandler.aspx, 7/25/2014 7:53:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement