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Royal Park Sues Bank of America Over Mortgage Securities

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Nov. 5 (Bloomberg) -- Royal Park Investments SA/NV sued Bank of America Corp., the second-largest U.S. bank, in New York state court over losses on about $1.6 billion in residential mortgage-backed securities.

The suit seeks damages of more than $713 million for losses on the securities, which were initially purchased by third parties, according to a complaint filed in New York State Supreme Court in Manhattan on Oct. 26. The court was closed last week because of Hurricane Sandy.

Royal Park, based in Brussels, was set up in May 2009 by Fortis Bank SA/NV, the Belgian state and BNP Paribas SA to manage a pool of distressed-debt securities. It sued Bank of America’s Merrill Lynch unit and other defendants, including JPMorgan Chase & Co., Goldman Sachs Group Inc., Credit Suisse Group AG, and Deutsche Bank AG in the same court in July over losses on mortage-backed securities.

Royal Park said in the complaint that it relied on “misrepresentations and omissions” in offering materials for the securities, and accused the bank of making “false and misleading” statements about statistical characteristics of the loans underlying the investments, such as the percentage of owner-occupied properties.

Securitized Loans

The securities are pools of home loans securitized into bonds. Such investments were a central part of the crisis that helped send the U.S. into the worst recession since the 1930s when the housing market collapsed and the market for the securities evaporated.

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, didn’t immediately respond to an e-mail seeking comment on the suit.

Bank of America said in a regulatory filing on Nov. 2 that it settled three cases where foreign mortgage-bond investors accused the lender of misrepresenting the quality of loans with the securities.

The firm settled suits with Dexia SA, Sealink Funding Ltd. and Bayerische Landesbank, Germany’s second-biggest state-owned lender, on Sept. 27, Bank of America said in the regulatory filing. The firm didn’t disclose the amounts it paid.

Chief Executive Officer Brian T. Moynihan, 53, has spent more than $40 billion to clean up defective mortgages and improper foreclosures. The third-quarter settlements mean a suit from insurer American International Group Inc. is one of the firm’s remaining major disputes over mortgage securities.

The lender also said it could have as much as $2.8 billion in legal costs as of Sept. 30 beyond what it has already set aside. That’s a decline from the $4.1 billion estimated three months earlier because of a settlement of a class-action suit tied to the 2009 takeover of Merrill Lynch & Co., said Jerry Dubrowski, a Bank of America spokesman.

The case is Royal Park Investments SA/NV v. Bank of America Corp., 653773/2012, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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