June 29, 2011

BofA in $8.5 Billion RMBS Deal With PIMCO, Goldman, Others

Bank of America's latest settlement involves 530 trusts that bought residential mortgage-backed securities for $424 billion.

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Bank of America said early Wednesday that it had reached a $8.5 billion settlement with 530 trusts that had purchased residential mortgage-backed securities from Countrywide. The trusts include PIMCO, BlackRock and Goldman Sachs.

The agreement was made with the Bank of New York Mellon, the trustee for the RMBS trusts that had original principal balances of $424 billion. It is subject to final court approval and certain other conditions.

"This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us," said Bank of America CEO Brian Moynihan (left) in a press release. "We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide."

The agreement includes a cash payment of $8.5 billion to the covered trusts to be made after final court approval of the settlement. Bank of America also says it plans to record an additional $5.5 billion provision for both government-sponsored enterprises (GSE) and non-GSE exposures in the second quarter of 2011.

In January, Bank of America announced agreements with two of its largest counterparties, Fannie Mae and Freddie Mac, and in April, the company and Countrywide signed an agreement with Assured Guaranty to resolve the monoline insurer's outstanding and potential repurchase claims related to RMBS trusts.

With Wednesday's announcement, BofA says it has covered “nearly all of the legacy Countrywide-issued first-lien private-label RMBS repurchase exposure.”

As a result of the settlement, and other mortgage-related matters, BofA expects to report a net loss in the range of $8.6 billion to $9.1 billion in the second quarter of 2011, or $0.88 to $0.93 per share. Excluding the settlement, other mortgage-related charges, and proceeds from asset sales, the company says it could report net income in the range of $3.2 billion to $3.7 billion in the second quarter of 2011, or $0.28 to $0.33 per share.

BofA’s shares were up 2.5% on Wednesday to trade near $11.10.

On Tuesday, bank analyst Richard Bove told Bloomberg that the bank, which owns Merill Lynch, is “massively undervalued” by investors. The Rochdale Securities analyst says its stock should recover as earnings move ahead of costs associated with troubled home loans.

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