Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

New York Fed Protects Bank of America Corp (BAC) From Big, Bad American International Group, Inc. (AIG)

Page 1 of 2

Just when investors thought the lawsuits over the shoddy mortgage loans and mortgage-backed securities plaguing Bank of America Corp (NYSE:BAC) might soon become merely a bad memory, a nasty bit of news showed up. A recent article in The New York Times reports that last summer, the Federal Reserve Bank of New York, unbeknownst to almost everybody, absolved B of A of liability in some MBSes it sold to American International Group, Inc. (NYSE:AIG), which were then purchased by the FRBNY.

Bank of America Corp (NYSE:BAC)Secret meetings, ongoing lawsuits
These securities were part of the AIG bailout, and they became one of the ingredients in the Maiden Lane II portfolio. If this sounds familiar, that’s because these documents were aired in a New York courtroom as part of the lawsuit filed against the New York Fed in an effort to sustain its right to sue B of A over those shaky MBSes.

According to AIG’s suit, however, the FRNBY somewhat mysteriously told Bank of America last December that AIG had sold its litigation rights along with the securities. Meanwhile, a 2011 lawsuit filed by the insurer against B of A regarding $10 billion of toxic MBSes — $7 billion of which were tucked into Maiden Lane II — is still pending.

For its part, Bank of America has asked a Los Angeles federal judge to dismiss AIG’s claim, saying that the insurer “long ago signed away” litigation rights during the bailout. But AIG states that it never explicitly signed away those rights — and as it turns out, “long ago” was actually last July.

A good deal for B of A?
Since the New York Fed sent a letter to AIG in October 2011 upholding the insurer’s right to pursue claims on those securities, AIG seems to have a valid point. As the article point out, however, the FRBNY began telling B of A another story last December, releasing the bank of liability, while asking nothing in return. Why would the Fed make such a deal with the bank, knowing the pending litigation? Did the New York Fed also make promises to other banks such as Goldman Sachs Group, Inc. (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM), which AIG may also be planning to sue?

On the surface, this looks like a favorable outcome for Bank of America. Taking that $7 billion claim off the table should make investors happy and save the bank some cold, hard cash. After all, it was a very big deal in August 2011 when AIG first filed the $10 billion lawsuit, causing the bank’s shares to tank until Warren Buffett stepped in with a $5 billion infusion to calm the waters.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!