Posted on 08/26/2011 1:50:12 PM PDT by Neidermeyer
As most know by now, the ridiculously low $8.5 billion putback settlement, which was supposed to have been closed by now, and which was the key driver in preventing Bank of America from trading far, far lower (and requiring much more capital), is the wildcard that would allow the bank to package tens if not hundreds of billions of claims against the bank in a "tidy (and very small) little package." The key factor allowing this settlement to be structured in its existing form, was that the lawsuit was filed in New York State Court, which allows for a little something known as Article 77, or a provision permitting "special proceeding related to express trust." The details are provided below, but in essence boil down to the following: the settlement in its current form can only be enacted if the lawsuit is conducted under New York State law. Well, minutes ago, David Grais, attorney for Walnut Place, which as we have repeatedly observed represents those interests who claim the $8.5 billion settlement is massively insufficient and are engaged in litigation seeking far greater recoveries, filed a request to transfer the lawsuit from State Court to Federal Court where everything basically begins a new. More than anything, this latest development may explain why Bank of America has been scrambling to raise tens of billions in the open market as an adverse court decision, one granting Grais' request, means the bank is suddenly open to unlimited downside capital risk. In the meantime, add major litigation headline risk to everything else that BAC has going for it...
(Excerpt) Read more at zerohedge.com ...
ping!
Make it plain! What do dis mean?
The 8.5 billion settlement, which Obama's administration supports by the way, was a ridiculously cheap way for BAC to limit its losses. It limits the judgements against BAC for peddling securities that were set up incorrectly. It's a sort of "cramdown" using an obscure provision of NY State trust law.
But, if the case is removed to Federal Court, NY State law won't apply, and BAC's liability could be much, much larger.
Well, this may be to simple, but the debt-o-crats in New York have debt but not money, sooooooooo - - - if the debt-o-crats in New York can sue a bank, ( ANY bank ) then the bank’s money becomes the New York debt-o-crats money.
Thank you!
and the stockholders take it in the shorts
That's an interesting separate topic. I've written before on this, and hardly anyone notices.
In a normal company, stockholders take losses first, and then bondholders, and then there's a bankruptcy proceeding. If the loss is enough to wipe out the stockholders, but not enough to wipe out the bondholders, then the bondholders become the new owners (stockholders).
That hasn't been the way it's worked with banks. The banks like to list bondholders (and even preferred shareholders) as part of their capital base. However, when the government intervened in the banking crisis, it made sure that the bondholders (and preferred stockholders) were protected 100%. So, in practice, the taxpayer stands in between the stockholders and the bondholders with unlimited liability.
Has anyone else noticed this?
BofA screwed the security investors over bigtime with inflated appraisals , inflated ratings , giving loans to people that would never qualify for them and by never actually securitizing the security instruments in addition to betting against the crapola they created ... Bank of America is screwing the security investors AGAIN by foreclosing on millions of homes to which they don’t have the note and don’t hold a beneficial interest in... and keeping the money from the sales rather than giving it back to the security investors ...
They are “that close” to getting away with it by abusing a local NY law ...
Their capital on the books is garbage ,, their own shares of stock which are held are worth less and less every day , the MBS tranches they hold are garbage ... they’re going to drop below $5 soon , the level most institutions use as a floor for determining whether a stock is one they are allowed to hold , and a level used to determine if a stock qualifies as colatteral for margin purposes,,, it could drop like a rock if it gets below $5.50/share,, and they deserve it richly.
That’s what TARP did, protect the bondholders. They should have been at risk (secondary) after stockholders. for some unknown reason, the goobermint was going to make the bondholders “whole”. as in no loss. There’s something fishy about the whole TARP deal. and when N. Pelosi can make 80% returns on the stock market when I’m lucky to squeeze out 15%, something really stinks.
Bank of America’s CEO really shouldn’t be settling. By handling out billions without any limitation of liability, he tempted both state AG’s and ambulance chasers across the nation. The amusing thing is that the guy claims his entire net worth is in Bank of America stock. He needs to get over his fear of controversy and drag the litigation out over the next decade (or longer). To his adversaries, this ain’t patty cake - they are attempting nothing less than the destruction of the bank. He had better get wise to this and start spending real money on experienced courtroom litigators, instead of relying on the old stable of contract lawyers whose primary expertise is adding footnotes to legal agreements.
Making the bank bondholders whole is a pet peeve of mine.
It is consistent with the way the “stress tests” were run—those focused on TCE (tangible common equity).
Here’s a funny thing: I spoke to an economist in the family who taught banking in grad school for a number of years a while back and asked him about this. He actually had no answer as to why the bondholders weren’t in the same position in banks as they would be in an ordinary company. The leverage ratios always focused on equity, and the bondholders were out there.... somewhere....
Bank of America’s CEO really shouldn’t be settling. By handling out billions without any limitation of liability
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The proposed $8.5B settlement deal was FABULOUS for BAC ,, That’s why having this remanded to Federal Court where they won’t get the sweetheart deal is such a blow... He can’t afford to drag this out ,,, don’t you understand ,, Bank of America is only in business because of Obama ,,, It is common knowledge , based on testimony from the CW Document Librarian , that ALL of the CW MBS’s are fataly flawed ... the trusts were never funded with the notes per NYS trust law ,, the docs were never delivered ... THIS MAKES UP A HUGE AMOUNT OF BAC TIER1 CAPITAL ... This is the definition of a zombie bank.
Absolutely. The bondholders in banks never pay a dime. Yet the government destroyed the auto company bondholders. Wall Street is saved; retirees are gutted and hung from streetlamps.
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