| NEW YORK, June 10
NEW YORK, June 10 Bank of America Corp
could put its Countrywide Financial unit into bankruptcy if it
fails to win court approval for an $8.5 billion settlement with
mortgage investors, a bank executive said on Monday.
Chief Risk Officer Terrence Laughlin was testifying at a
hearing in New York state court on whether to approve the deal,
which would settle claims by investors who said Countrywide
misrepresented the mortgages underlying bonds they bought.
During negotiations leading up to the June 2011 settlement,
Bank of America threatened to put Countrywide, which it had
rescued at the height of the financial crisis in 2008, into
bankruptcy. That possibility was still on the table, Laughlin
said on Monday.
"One of the options that was available to us and continues
to be available to us was to put Countrywide into bankruptcy,"
Laughlin represented Bank of America at negotiations with
institutional investors, including BlackRock Inc,
MetLife Inc and Allianz SE's Pacific
Investment Management Co (Pimco).
American International Group Inc and a handful of
other investors are challenging the deal, saying it offers only
pennies on the dollar.
Laughlin said on Monday he wasn't bluffing when he told the
investors during negotiations that Bank of America could declare
Countrywide bankrupt if liabilities became too great.
"I never bluffed during the course of this negotiation,"
However, he denied that he or anyone else at Bank of America
had discussed a Countrywide bankruptcy with the bank's
regulator, the Office of the Comptroller of the Currency.
"What I said was that, in my opinion, I would not see the
regulators being any impediment to bankrupting Countrywide."
That appeared to be slightly at odds with the opening
statement last week of Kathy Patrick of Gibbs & Bruns, a lawyer
for the institutional investors who said witnesses would testify
that Laughlin told investors the bank received clearance from
the OCC to put Countrywide into bankruptcy.
The first witness in the hearing, Pimco executive Kent
Smith, said last week that Laughlin "gave us the impression that
he had approval of his regulator to file Countrywide into
Scott Waterstedt, a MetLife executive who also testified
Monday, said that when Bank of America threatened the bankruptcy
of Countrywide, "I certainly considered it a risk."
The OCC has declined to comment.
A lawyer for AIG, the lead objector to the deal, last week
asked why the negotiators had settled for $8.5 billion when they
had initially asked for $50 billion.
Since then, witnesses have said that $50 billion was not an
actual demand in the negotiations.
Laughlin said Bank of America entered into the negotiation
never thinking it would pay as much as $8.5 billion. The bank
initially offered about $1.5 billion, he said. In April 2011,
the investor group was demanding $12 billion to $16 billion.
When the investors' demand came down to a
take-it-or-leave-it $8.5 billion, Bank of America worried that,
if it didn't accept, the investor group would say publicly that
settlement talks had ended.
"I was concerned they would begin revealing and making
claims that would affect the Bank of America stock price,"
The case is In re: Bank of New York Mellon, New York State
Supreme Court, New York County No. 651786/2011.