AIG Plays Billon-Dollar Hardball With Bank of America

Bank of America

Source: http://www.flickr.com/photos/afagen/

Bank of America Corp. (NYSE:BAC) has been a powerhouse investment over the past few years. Like much of the industry, the bank appeared to teeter on the edge of collapse in the wake of the financial crisis — shares lost nearly 90 percent of their value between February 2008 and February 2009 — but the industry has recovered with a financial vitality that is unique to America’s largest banks. Shares are up more than 200 percent since November 2011, and up more than 35 percent over the past 52-weeks, as the bank’s business machine comes back to life after the near-death blow it received during the crisis.

The rally hasn’t been without cost, though. On Thursday, a New York state judge held a hearing related to an $8.5 billion settlement with investors who were misled about the quality of mortgage securities they bought from Bank of America in the run-up to the financial crisis. Bank of America and The Bank of New York Mellon Corp. (NYSE:BK), which is acting as trustee for the investors, agreed to the deal in 2011, but like most major settlements, one of the investors wasn’t satisfied.

American International Group Inc. (NYSE:AIG), which holds about 7 percent of the securities in question, complained that the settlement wasn’t enough. The firm stepped in and instigated nine weeks of court hearings which lasted from June to November of 2013. Other investors involved in the deal include pension funds, including one managed for the Chicago Police department, which has also expressed some dissatisfaction with the terms of the settlement.

In court on Thursday, Judge Saliann Scarpulla ruled that Bank of America’s settlement will be allowed to go forward despite the protests of AIG. The ruling doesn’t prevent AIG from continuing to argue its case, though.

“We are pleased that the court intends to address AIG’s motion for re-argument,” an AIG spokesperson said in a statement, according to MarketWatch. “AIG also looks forward to pressing ahead with its appeal at the appropriate time.”

Putting the settlement behind it would be relief for Bank of America, which has already faced billions in penalties as a result of the financial crisis. But it’s game with AIG is far from over. AIG is pursuing a separate lawsuit against the bank in which it is seeking $9 billion in damages related to mortgage-backed securities.

More From Wall St. Cheat Sheet:

More from The Cheat Sheet