Bank of America $8.5B settlement hearing resumes

After a roughly three-week hiatus, a hearing on a proposed $8.5 billion settlement involving Bank of America and investors of bonds backed by Countrywide loans resumed Monday in New York Supreme Court.

Being watched closely by analysts, the case is considered by many to be one of the biggest legal question marks hanging over the bank as it tries to move past costly litigation that’s dogged it since the financial crisis. In March, SNL Financial reported that, from 2010 to last year, Bank of America agreed to $41.6 billion in settlements.

The $8.5 billion settlement, which dates to June 2011, was struck with 22 institutional investors who say Countrywide Financial Corp. originated home loans that did not comply with the company’s own underwriting guidelines. Bank of America bought subprime mortgage giant Countrywide in 2008, during the financial crisis.

Objectors to the settlement, including American International Group, say the $8.5 billion falls short of what investors lost. AIG has put losses to investors at $108 billion.

Last month, Reuters reported that Bank of America rejected a bid to reopen negotiations into the settlement. AIG and the Federal Home Loan Banks of Boston, Chicago and Indianapolis had requested discussions about the settlement.

Observers say the judge presiding over the hearing, Barbara Kapnick, is expected to give either a thumbs-up or thumbs-down to the settlement, not rule on the merits of the deal. A rejection of the settlement, analysts say, would create uncertainty over how much the bank might end up paying to satisfy the investors, creating a setback for a bank whose investors have complained about settlements hurting its earnings power.

Mark Palmer, an analyst with BTIG Research, wrote Monday that Bank of America "has reserved the exact amount of the settlement ... so the bank would need to take a charge to boost reserves if it agreed to a higher figure as a result of mediation."

According to court documents, closing arguments are expected to wrap up July 26.