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By Karen Freifeld
NEW YORK, July 16 Bank of America agreed
to pay American International Group Inc $650 million to
settle long-running legal disputes over defective
mortgage-backed securities sold in the run-up to the financial
The deal, which the parties announced early Wednesday, ends
securities fraud litigation that the insurer brought against
Bank of America. It also removes the biggest obstacle to the
bank's $8.5 billion settlement with investors in mortgage
securities issued by Countrywide Financial, the subprime lender
Bank of America acquired in 2008.
AIG will file notices dismissing its litigation accusing the
bank of causing billions of dollars in losses by selling it
shoddy mortgage securities. The litigation is pending in New
York and California.
For the past three years, AIG led opponents in holding up
court approval of a settlement Bank of America reached in June
2011 with institutional investors to pay $8.5 billion to resolve
claims over $174 billion worth of mortgage-backed securities
issued by Countrywide Financial before the housing crisis.
The investors said Countrywide had misrepresented the
quality of the underlying home mortgages, which went sour in the
Twenty-two institutional investors, including BlackRock Inc
, Allianz SE's Pimco and Metlife Inc,
and Bank of New York Mellon Corp, the trustee for the
securities, agreed to the settlement.
AIG claimed there was no evidence that the deal provided
adequate compensation for losses.
Justice Barbara Kapnick in New York state court gave the
go-ahead for the bulk of the settlement in January, withholding
her approval only from settlement of claims involving certain
loans that had been modified. But AIG appealed Kapnick's
As part of the agreement, AIG agreed to withdraw its
objection. In a release on Wednesday morning, the insurer said
it would receive its pro rata share of whatever is ultimately
paid out to investors in connection with that settlement.
A group of funds known as the Triaxx entities and the
Chicago Police pension fund remain as objectors.
The $650 million settlement was covered by litigation
reserves as of June 30, Bank of America said.
As part of the deal, Bank of America said it was settling
three actions it brought to collect mortgage insurance proceeds
due from AIG`s United Guaranty mortgage insurance subsidiaries
on loans it had originated and serviced.
The cases are American International Group Inc et al v.
Maiden Lane II LLC, U.S. District Court, Southern District of
New York, No. 13-00951; American International Group Inc et al
v. Bank of America Corp et al, U.S. District Court, Central
District of California, No. 11-10549. The $8.5 billion case is
In re: The Bank of New York Mellon, New York State Supreme
Court, New York County, No. 651786/2011.
(Reporting by Karen Freifeld; Editing by Lisa Von Ahn)