Pimco Defends $8.5 Billion BofA Mortgage Accord
By David McLaughlin - Jun 7, 2013 12:01 AM ET
Bank of America Corp.’s $8.5 billion mortgage-bond settlement is “outstanding” for investors, said a Pacific Investment Management Co. executive, who defended the deal against opposition.
The settlement was reached after an investor group that included Pimco and BlackRock Inc. (BLK) at first demanded $12 billion, eventually coming down to a “take or leave it” offer of $8.5 billion, Kent Smith, an executive vice president at Pimco who helped negotiate the agreement, testified yesterday.
“It’s an outstanding deal, and it’s in the best interest of our clients to support it,” Smith said.
Smith was the first witness to testify in a trial over the agreement, which is being considered by Justice Barbara Kapnick of New York State Supreme Court in Manhattan. The accord resolves claims from Countrywide Financial mortgage-bond investors over loans bundled into securities. American International Group Inc. (AIG) is fighting the settlement, saying Bank of America isn’t paying enough to compensate investors.
Settlement negotiations took place during the first half of 2011 when the Pimco group fought with Bank of America representatives over the estimated size of Countrywide’s liability, Smith said. Investors at one point presented an analysis to Bank of America, and the bank’s chief risk officer, Terrence Laughlin, “threw it back across the table at us,” Smith testified.
Suing Versus Settling
During the talks, investors considered risks they faced if they decided to sue Countrywide to recover losses instead of settling, Smith said.
A Bank of America attorney told the investor group that the Charlotte, North Carolina-based lender was prepared to put Countrywide into bankruptcy if necessary, Smith testified. They were also told the bank had approached a federal banking regulator about a bankruptcy filing, he said.
“They had certainly given it a lot of thought,” Smith said.
When the investor group made its demand of $8.5 billion, Bank of America offered $7 billion and also wanted to make the payment over time, he said. The investors rejected that offer.
“It’s my assessment that we got the best deal available,” Smith said.
The case is In the matter of the application of the Bank of New York Mellon, 651786-2011, New York State Supreme Court, New York County (Manhattan).
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