Bank of America's Billion-Dollar Fate Hangs in the Balance

Investors wait patiently for the bank's Article 77 hearing to be resolved -- but they may not have to wait much longer.

Jan 22, 2014 at 8:00PM


Photo: Flickr/Emmanuel Huybrechts.

Investors have been biting their nails for months over Bank of America's (NYSE:BAC) Article 77 hearing. Now a big change in the presiding judge will expedite the matter.

The $60 billion question
It's been quite a while since institutional investors first took a stand against Bank of America's $8.5 billion settlement over mortgage-backed securities. With American International Group (NYSE:AIG) at the helm for the dissenters, the megabank testified as to the appropriateness of the dollar amount for the settlement, as well as Bank of New York Mellon's (NYSE:BK) management of the settlement.

AIG and other investors believe that the $8.5 billion is insufficient, citing a settlement with MBIA (NYSE:MBI) that resulted in a payout of $0.60 on the dollar. If the ruling goes in favor of the investors, Bank of America could be out $60 billion.

Movin' on up
Investors have been waiting patiently, and now they are being rewarded. The judge who presided over the hearing, Justice Barbara Kapnick of the New York State Supreme Court, has received a promotion by means of an appointment to the Appellate Division by New York's governor, Andrew Cuomo.

Kapnick's appointment is effective as of Feb. 3, so her decision on the Bank of America hearing should come before that date -- less than two weeks from now. According to New York state law, a judge is able to make a ruling on a case he or she has overseen even after a promotion, if that case is ready for a ruling.

What investors should expect
The hearing has been hanging over Bank of America like a black cloud. With the uncertainty of the payout's final total causing some bulls to become bears, the bank hasn't been able to gain ground in the stock market despite its continued success. As of Wednesday's close, the bank still trades at a 21% discount to its Dec. 31 book value -- even after surpassing the all-important $17 mark.

If the settlement is approved, expect shares to jump. Though the bank continues to assess its legal exposure to mortgage bonds and other questionable items, it has been setting aside less and less for litigation expenses. The resolution of this big legal hurdle would be just one more reason for the bank to reconsider the level of legal reserves it sets aside.

If the investors against the settlement prevail, expect the bank to drop like a stone -- but not for long. Though the fourth quarter saw the bank at record levels of liquidity and solid capital management, a $60 billion price tag wouldn't even completely wipe out the bank's cash position. But following the initial sticker shock, Bank of America should recover (though maybe not quickly) because of the success of its operations over the past few quarters.

Waiting game
In the meantime, take some time to look over the bank's fourth-quarter and full-year 2013 earnings report to decide if you like the company for a long-term investment. The current legal battles are a headache for any investor, but the bank has recovered from the financial crisis and is decidedly in the "winners" column of the financial industry in terms of performance and growth.

A banking alternative
Maybe you're tired of dealing with the Bank of America legal drama. If you're like most Americans, chances are good that you would say that you hate your bank -- with B of A a likely target for your ire. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking and is poised to kill the traditional bricks-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under Wall Street's radar. For the name and details on this company, click here to access our new special free report.

Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends and owns shares of AIG and Bank of America and also has options on AIG. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers