| NEW YORK
NEW YORK Nov 21 A decision on whether to
approve Bank of America Corp's proposed $8.5 billion
settlement with investors in mortgage securities is now in the
hands of a New York state judge, after a nine-week court
proceeding ended on Thursday.
Justice Barbara Kapnick, of New York state Supreme Court in
Manhattan, must decide whether it was reasonable for Bank of New
York Mellon Corp, as trustee for the securities, to enter
into the settlement, which is binding on investors.
The judge gave no indication when she might rule. Decisions
in New York state courts can take weeks or even months.
Bank of America agreed to the deal in June 2011 to resolve
claims over toxic mortgage-backed securities issued by
Countrywide Financial, which Bank of America bought in 2008.
A group of 22 institutional investors, including BlackRock
Inc, Metlife Inc, and Allianz SE's Pacific
Investment Management Co (Pimco) took part in the negotiations.
Objectors to the settlement have been led by American
International Group Inc (AIG), which has argued the process was
flawed and that there is no proof the settlement adequately
New York attorney Hector Gonzalez, of Dechert, who
represents Bank of New York Mellon, got in the last word on
"The settlement looks even better for the trusts today than
it did in June 2011," Gonzalez said, given the housing recovery
and court rulings that make it likely that Bank of America would
not be held responsible for Countrywide's liabilities.
He told the judge the decision to approve the settlement
should be "an easy call," as it was for the trustee, despite
efforts by the objectors to complicate the case.
Earlier Thursday, New York attorney Beth Kaswan, of
Scott+Scott, who represents the Chicago police pension fund,
urged the judge to reject the deal.
Kaswan is among opponents who say the settlement would
resolve claims for up to $100 billion in losses, offering only
pennies on the dollar.
"This settlement is not fair and reasonable," Kaswan said in
her closing. "BNY Mellon left billions of dollars on the
During the proceeding, the objectors raised conflict of
interest issues, claimed the investor group excluded some
bondholders, and criticized the trustee for not reviewing loan
files to identify defective loans.
Proponents say the objectors represent fewer than seven
percent of investors in the 530 trusts covered by the deal, and
that the trustee speaks for all certificate holders.
The number of opponents also has fallen since the case
began. The Federal Home Loan Banks of Boston, Chicago and
Indianapolis, who withdrew their opposition on Nov. 1, were
among the latest opponents to drop out.
The attorneys-general of New York and Delaware, who
intervened in the case two years ago, said in May they would not
block the accord.
Kathy Patrick, a lawyer representing the group of 22
investors, told the judge on Thursday that the trustee achieved
"a superb result" for investors.
She said that rather than settle, the dissident objectors
want to put the claims on "a far riskier and uncertain course."
"There is, in short, no evidence on which this court can or
should displace the trustee's reasonable judgment," said
Patrick, of the Houston law firm Gibbs & Bruns.
Patrick called it a "fiction" that her group excluded
investors, and said that AIG declined to participate.
The supporters contend there are about $53 billion in
losses to date, and account for 90 percent of lifetime losses.
They say reviewing loan files would have only brought
uncertainty and disputes. An expert hired by the trustee
evaluated projected losses using data from 100,000 loans.
The judge thanked the attorneys and commented on the
tensions before adjourning on Thursday.
"It was a difficult long trial," Kapnick said, with "heated
moments, which you would expect in a case of this magnitude."
JPMorgan Chase & Co on Friday entered into a $4.5 billion
settlement with a similar group of investors to resolve
misrepresentations in mortgage securities issued by JPMorgan and
Bear Stearns, which it acquired in 2008.
Unlike the Bank of America deal, the trustees overseeing the
securities were not involved in negotiations. They were given 60
days to evaluate the deal, which may require court approval as
The case is In re Bank of New York Mellon, New York State
Supreme Court, New York County, No. 651786/2011.