NEW YORK (Reuters) - The Federal Reserve Bank of New York this week made public a mortgage-securities settlement with Bank of America that could bolster the BofA’s case against American International Group Inc over claims on the assets.
AIG filed a $10-billion lawsuit against Bank of America aimed at recouping losses from the U.S. lender.
AIG claims it did not lose the right to recoup these losses when it transferred $18 billion in litigation claims to the New York Fed after the U.S. central bank bailed out the insurer during the 2008 financial crisis.
The settlement the New York Fed submitted to a Los Angeles court on Thursday showed that, when it agreed to purchase assets from AIG as part of its bailout, it understood that it was acquiring all “right, title and interest” in them. That included litigation claims associated with those securities, the settlement said.
Earlier this week, a federal judge in New York put a related AIG dispute with the New York Fed on hold while the Los Angeles court addresses the insurer’s lawsuit against Bank of America.
The Los Angeles court will ultimately have to decide who owns the Bank of America litigation claims.
The settlement filed on Thursday showed that Bank of America agreed to pay the New York Fed some $62 million, including $43 million related to the residential mortgage securities.
As part of the settlement, the New York Fed unit that held the assets, called Maiden Lane II, released all claims it had against Bank of America related to those securities.
Asked why the New York Fed did not instead pursue further claims against Bank of America, given the size of AIG’s claims, a spokesman said the Fed bank wanted to secure the $62 million settlement.
It made the decision after “an analysis of the strength of the potential claims, the cost of pursuing such claims and the likelihood that it would succeed if it was to pursue them,” the spokesman said.
AIG’s bailout eventually totaled $182.3 billion. The bailout was fully paid off last year, however, with a realized public net gain of $2.8 billion.
Reporting by Jonathan Spicer; Editing by Dan Grebler and Andrew Hay