BofA 8.5 Billion Settlement in Dispute

Bank of America's Article 77 hearing resumed this week at which a NY State Supreme Court judge will or won't approve the bank's $8.5B MBS settlement with investors like Goldman, BlackRock, and Pimco. To review: The objectors - led by AIG - contend the amount is far too small and the trustee assigned to guard bondholder interests - BNY Mellon - was horribly conflicted due to business ties with BofA.

In what CLSA Mike Mayo describes as the most explosive action thus far, AIG's attorneys tried to establish Brian Lin of little-known RRMS Advisors (he was hired by BK to write a report on the reasonableness of the $8.5B deal) was no more than a rubber-stamp for the cheap settlement. The judge eventually had to step in and cut off questioning.

Mayo maintains his sell rating on BAC, believing Street consensus of a 1-in-20 chance of the settlement being throw out is too small. Should the judge actually vacate the settlement, the bank faces another $16B-$22B in legal damages, he says.