Bank of America and BNY Mellon: Can You Trust the Trustee?

Bank of America


Buoyed by broad-based market optimism, Bank of America Corp. (NYSE:BAC) set a 52-week high of $15.16 per share on Monday morning. Although shares have spent the past three months trapped in a range between about $13.70 and $15, the stock is up more than 24 percent this year to date and more than 57 percent year over year, making it one of the best-performing stocks in the financial sector.

Bank of America’s rally has been backed by mixed news. In its third-quarter earnings report, the bank noted that net income jumped sharply, climbing to $2.5 billion, or 20 cents per share, from $340 million, or zero cents per share, from the year-ago period. Commercial loan balances increased 19 percent on the year to $395 billion, and global wealth and investment management fees came in at $1.7 billion, landing it a No. 2 spot on the leader board.

But strong financial and operational performance has been undermined by enormous regulatory pressure. To date, Bank of America has spent more than any other major financial institution repairing the damage caused by its participation in the financial crisis. The bank has spent as much as $20.1 billion on legal fees and litigation expenses over the past five years, and it has nearly $36 billion more set aside for possible future damages.

Nearly a quarter of that war chest could be put to use soon. Bank of America is trying to put out a long-burning fire started by its crisis-era acquisition of Countrywide Financial Corp.

Last week marked the end of testimony in a trial related to Countrywide’s sale of mortgage bonds before the financial crisis. The deal, which would have Bank of America settle with investors for $8.5 billion, was initially reached in 2011 but has yet to work its way in to reality.

At issue is whether the deal is fair to the investors who were sold mortgage bonds by Countrywide. The bonds sold to investors put them on the hook for as much as $100 billion, and many feel that the $8.5 billion settlement is not enough. Investors in the bonds include major financial institutions like BlackRock (NYSE:BLK), MetLife (NYSE:MET), and American International Group (NYSE:AIG). BlackRock and MetLife both signed the agreement, but AIG opposes it.

Critics of the bill have accused the Bank of New York Mellon Corp. (NYSE:BK), which was the trustee overseeing the securities, of not looking out for the bondholders. Allegedly, Bank of New York Mellon was more interested in currying favor with Bank of America than in fulfilling its duties as trustee, which may have meant standing in the way of some of the bond sales.

Given that it stands to lose out if the settlement is found wanting, Bank of New York Mellon has thrown its support behind the deal.

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