The $8.5 billion settlement reached with Bank of America Corp. gave mortgage-bond investors more than twice what they would have recovered through litigation and was an “easy decision,” an attorney for the trustee who negotiated the deal said.
Matthew Ingber of Mayer Brown LLP in New York, who represented the trustee, Bank of New York Mellon Corp., yesterday asked New York State Supreme Court Justice Barbara Kapnick in Manhattan to approve the settlement during closing arguments of a hearing on the agreement.
American International Group Inc. (AIG) and other objectors to the settlement “rolled the dice and lost,” Ingber told Kapnick. He said Bank of America’s Countrywide unit had a maximum of $4.8 billion in assets to pay claims on the bonds. “The trustee chose finality and certainty and has $8.5 billion to show for it,” he said.
The settlement is part of an effort by Brian Moynihan, chief executive of Charlotte, North Carolina-based Bank of America, to resolve liabilities tied to faulty mortgages that have cost the company about $50 billion in legal claims, including those the bank inherited with the purchase of home lender Countrywide Financial Corp. in 2008.
The accord, which includes more than $3 billion in servicing improvements, resolves claims over mortgages packaged into securities. It settles allegations the loans backing the bonds didn’t meet their promised quality.
BNY Mellon, as trustee for more than 500 residential mortgage-securitization trusts, filed a petition in June 2011 seeking approval of the settlement under a state law that allows trustees to seek judicial consent for their actions.
While the settlement was backed by a group of more than two dozen investors including BlackRock Inc. (BLK) and Pacific Investment Management Co., almost four dozen investors objected, including AIG. Only 15 objectors opposed to the settlement remained as closing arguments began, Ingber said.
The closing arguments cap a hearing that started in June, stretched over eight weeks and included testimony from almost two dozen witnesses and evidence from more than 200 documents.
Bank of America declined to participate in mediation talks proposed by AIG and other opponents of the settlement after Kapnick urged the parties to consider using a mediator to resolve their objections during a break in the hearing.
Ingber refuted the objectors’ arguments that investors weren’t given sufficient notice of the settlement, saying that the trustee mailed notices of the deal to beneficiaries, published it in U.S. and international newspapers and placed banner advertisements on websites.
Bank of America told AIG about the negotiations and offered it input into the talks, Inger said. The insurer refused and the objectors “sat on the sideline,” he said.
Arguments that the trustee colluded with Bank of America on the settlement are “implausible,” he said. The trustee had discretion to enter the settlement and engaged in “arms-length” negotiations that were “hostile and contentious,” he said.
“The conflict theories are just not credible,” Ingber said. “The trustee acted with good faith and well within the bounds of its reasonable discretion.”
Opponents will be bound by the settlement, if approved. They said in court papers that the process leading to the agreement was “plagued by conflict and collusion” and settles claims where investor losses totaled more than $100 billion.
Kathy Patrick, an attorney for BlackRock and other institutional investors that back the settlement, told Kapnick that BNY Mellon is the “one trustee that stepped forward to get something for investors.”
“Bank of New York Mellon got nothing it was not already entitled to,” said Patrick, who is with Gibbs & Bruns LLP in Houston. “It did not enrich itself at the expense of certificate holders.”
Patrick denied objectors’ allegations that her law firm took an $85 million payment from Bank of America in exchange for supporting the settlement. She said her firm has been “smeared as colluders.”
The case is In the Matter of the Application of the Bank of New York Mellon, 651786-2011, New York State Supreme Court, New York County (Manhattan).
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