Wednesday, August 31, 2011

Turn On The Lights, Watch The Roaches Scatter Part 77

So, turns out Bank of America had plenty of notification that AIG was going to sue them.  Like seven months worth of warning.  And no, they didn't tell shareholders.

Top Bank of America Corp lawyers knew as early as January that American International Group Inc was prepared to sue the bank for more than $10 billion, seven months before the lawsuit was filed, according to sources familiar with the matter.

Bank of America shares fell more than 20 percent on August 8, the day the lawsuit was filed, adding to worries about the stability of the largest U.S. bank. It wasn't until Warren Buffett stepped up with a $5 billion investment that those fears were eased, though hardly eliminated.

The bank made no mention of the lawsuit threat in a quarterly regulatory filing with the U.S. Securities and Exchange Commission just four days earlier. Nor did management discuss it on conference calls about quarterly results and other pending legal claims.

The SEC's rules for litigation disclosure are murky, and some lawyers said Bank of America may have been justified in not revealing AIG's lawsuit before it was filed. The bank's litigation disclosures are in line with those of many rivals.

But other lawyers said banks have an obligation to disclose legal threats that could have major consequences.

"Publicly owned companies are supposed to disclose material threatened litigation under generally accepted accounting principles," said Richard Rowe, a former director of the SEC's Division of Corporation Finance, who was commenting generally and not specifically about Bank of America.

The odds of this little tidbit becoming an even larger headache for Bank of America this week is pretty high, especially since shareholders are already suing the bank to block the settlement deal with New York State.  Something tells me this injunction will be carried out in all due haste.

The wolves are circling the tree, and Bank of America is running out of branches to hold on to.  Because it gets even worse for the company.

The attorney general of Nevada is accusing Bank of America of repeatedly violating a broad loan modification agreement it struck with state officials in October 2008 and is seeking to rip up the deal so that the state can sue the bank over allegations of deceptive lending, marketing and loan servicing practices.

In a complaint filed Tuesday in United States District Court in Reno, Catherine Cortez Masto, the Nevada attorney general, asked a judge for permission to end Nevada’s participation in the settlement agreement. This would allow her to sue the bank over what the complaint says were dubious practices uncovered by her office in an investigation that began in 2009.

In her filing, Ms. Masto contends that Bank of America raised interest rates on troubled borrowers when modifying their loans even though the bank had promised in the settlement to lower them. The bank also failed to provide loan modifications to qualified homeowners as required under the deal, improperly proceeded with foreclosures even as borrowers’ modification requests were pending and failed to meet the settlement’s 60-day requirement on granting new loan terms, instead allowing months and in some cases more than a year to go by with no resolution, the filing says. 

And if this is granted, I just don't see how the bank survives.  The Nevada complaint accuses Bank of America ,among other things, of actually punishing their loan modification staff if they spent more than ten minutes trying to help a single customer.  Their job was to get them off the phone in such a way that they wouldn't call back and would basically give up on getting a loan modification.  These guys are pretty much toast.

And B of A is the largest bank in the country.  You do the math as to what that will do to the markets when the hammer drops on them.

I fear we'll find out pretty soon.

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