The Article 77 hearing in Justice Barbara Kapnick’s courtroom in Manhattan may have gotten off to a slow start, but a lot of action has taken place in only two days. The question of whether or not The Bank of New York Mellon Corporation (NYSE:BK) acted reasonably in negotiating the $8.5 billion settlement between 22 institutional investors and Bank of America Corp (NYSE:BAC) has been asked, with some very interesting opening arguments from BONY and American International Group, Inc. (NYSE:AIG), the settlement’s biggest detractor.
Commentary not very positive for B of A
Since the hearing is about BONY’s judgment, the bank’s attorney, Matthew Ingber ticked off several points indicating that the decision to settle was fair and reasonable, based on the information the bank had at its disposal at the time. As Mark Palmer of BTIG Research notes, though, much of that information has since been invalidated.
For example, expert witness Professor Robert Daines, of Stanford Law School, was of the opinion that the state of Delaware, with its very stringent laws regarding de facto mergers and successor liability, would hear this case. Of course, the venue was changed to New York, which has a less rigorous test in place for this type of issue.
Another point concerns testimony by Professor Barry Adler of the New York University of Law. In his opinion, Bank of America Corp (NYSE:BAC)’s liability should be tied to the losses that were specifically due to any breach of representation or warranty. Unfortunately for B of A, this argument won’t hold water, since many rulings over the past two years have come down on the side of plaintiffs not having to show that such a breach caused their losses.
AIG has its turn
American International Group, Inc. (NYSE:AIG)’s lawyer also spoke, stating that not only was the settlement amount much too low, but that there was collusion between the two big banks that kept the process from being equitable to the complainants. According to AIG, BONY should have sued to obtain pertinent loan files that B of A declined to turn over to the negotiators, so the true extent of the investors’ losses could have been determined.
The insurer also jabbed at BlackRock, Inc. (NYSE:BLK) , another institutional investor that has since pulled its objections to the settlement, alleging a “cozy” relationship between the equity firm and B of A, according to The Wall Street Journal. Lastly, American International Group, Inc. (NYSE:AIG) saw Bank of America Corp (NYSE:BAC)’s coverage of legal fees for trustee BONY and the group of investors as further proof of a flawed resolution procedure.