At the opening bell, Bank of America Corp (NYSE:BAC) was down 0.37% after being down another 0.31% in overnight trading. But the superbank has bounced backed, and is now up 0.93%, which is surprising considering the bad news that just broke for B of A.
Deja vu all over again
Late yesterday, The New York Times broke the story that a California judge has cleared the way for insurance giant American International Group, Inc. (NYSE:AIG) to sue B of A over more than $7 billion in securities fraud. It will come as no surprise that the fraud claim goes back to the financial crisis.
The securities at issue are mortgage-backed securities, “sold under duress after the federal government rescued AIG in 2008.” These particular MBSes were sold to the Federal Reserve Bank of New York in the fall of 2008, at the height of the crisis. B of A had argued in court that, once these assets were sold to the New York Fed, B of A was absolved of any future legal claims regarding them.
Foolish bottom line
In response to the ruling, a spokesperson for B of A “said the court ruling allowed it to ‘pursue additional discovery before the matter is fully decided.'” But taken at face value, that statement sounds weak, and it’s not clear B of A has any real room to maneuver on this.
Once again, just when you think the big banks have finally taken out the last of the crisis-related trash, you find another pile rotting in some hidden corner of the books. Out of all the big banks, B of A seems particularly prone to this sort of thing. It was only this past January that B of A settled for more than $10 billion with government-run housing giant Fannie Mae over soured, crisis-related mortgage-backed securities.
But the bank’s investors seem to be taking this news not just with a grain of salt, but with apparent elation — or at the very least nonchalance.
Maybe investors haven’t gotten wind of the story yet. So far as I can tell, it’s a Times exclusive. Or maybe they’re still riding the high from Tuesday’s news that B of A settled a long-running legal dispute with bond-insurer MBIA Inc. (NYSE:MBI), trading a $1.7 billion payout and a $500 million line of credit for release from more bad securities claims that could have cost the bank anywhere from $3 billion to $5 billion.