Posted on Friday, December 17, 2010
In a bid to turn down the temperature in what promises to be an extended legal battle, Bank of America has opened a dialogue with investors who want the bank to buy back tens of billions in soured mortgages.
But bank officials insisted on Wednesday the talks did not represent a shift in strategy by the company’s chief executive, Brian T. Moynihan, who has promised “hand to hand combat,” fighting the so-called put-back claims on a loan-by-loan basis.
In October, a group of investors including the Federal Reserve Bank of New York and the money management giants Pimco and BlackRock sent a letter to the bank demanding action, giving Bank of America 60 days to act. That deadline expires Thursday, but with the announcement of the talks, the deadline has been extended.
Lawyers for the bank have reached out to Kathy Patrick, a Houston lawyer who is leading the effort, while also talking to BlackRock and Pimco as part of broader discussions between the companies.
“Our clients are very pleased that we’ve opened a dialogue,” Ms. Patrick said. “It’s our hope that these discussions will be constructive and our investors are very pleased that their concerns are being taken seriously.”
Bank of America executives were caught short by the letter, which made headlines on the same day in October that the bank announced earnings for the third quarter and overshadowed what had been a positive profit report.
Mr. Moynihan and other executives repeatedly promised a tough legal response, but bank executives played down talk that the new discussions represented a retreat from that stance. “This is not a change in strategy,” said Larry Di Rita, a spokesman for the bank. “It stops a legal clock from ticking, for now.”
Bank of America shares jumped in after-hours trading on Wednesday on hopes that what had been a major worry hanging over the company might soon fade.
Still, any compromise is a long way off. And even if talks with this group prove fruitful, hedge funds and other investors have been quietly buying up mortgage-backed bonds recently on the hope that the bank will be forced to buy a portion of them back.
Bank of America is not the only financial giant facing a threat from put-back claims — other giants like Citigroup and JPMorgan Chase have also set aside billions to cover possible claims.
By NELSON D. SCHWARTZ
Chuck Burton/Associated Press NYT