AIG argues against $8.5 billion settlement with BofA

Tue Jun 4, 2013 10:15pm EDT
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By Karen Freifeld

NEW YORK (Reuters) - American International Group Inc (AIG.N: Quote) argued on Tuesday that a proposed $8.5 billion settlement between Bank of America Corp (BAC.N: Quote) and investors in Countrywide Financial Corp mortgage-backed securities was not big enough.

The arguments came in the second day of a hearing before Justice Barbara Kapnick in New York state court on whether to approve the 2011 settlement.

Bank of America, which rescued Countrywide at the height of the financial crisis in 2008, agreed in 2011 to settle with investors who said Countrywide had misrepresented mortgages underlying its securities.

A lawyer for AIG, one of a handful of entities objecting to the deal, said the investors had first asked for $50 billion. "Why did that number crater from fifty billion dollars down to eight?" Daniel Reilly, of the law firm Reilly Pozner, asked in his opening arguments on Tuesday.

Reilly also said that Bank of America had a strategic relationship with BlackRock Inc (BLK.N: Quote), one of the investors that supports the deal, and with Bank of New York Mellon Corp (BK.N: Quote), which is the trustee for 530 trusts holding the securities in question.

Reilly said Kapnick will have to consider whether the relationships are the reason "why the number craters" and why institutional investors never "seriously considered" a lawsuit against Bank of America. "This settlement amount is inadequate," he said.

Kathy Patrick, the lawyer who negotiated the settlement on behalf of 22 institutional investors, defended the deal in her opening statement, saying it was the largest in the history of private litigation and nearly twice the $4.8 billion that Countrywide was worth.

Patrick, of the law firm Gibbs & Bruns, represents BlackRock, MetLife Inc (MET.N: Quote), Allianz SE's (ALVG.DE: Quote) Pacific Investment Management Co (Pimco) and other investors.   Continued...

The American International Group, Inc. (AIG) stock ticker is seen on a monitor as traders work on the floor of the New York Stock Exchange after the opening bell February 11, 2013. REUTERS/Brendan McDermid