Last week, Bloomberg reported that a lawsuit has been filed against Bank of America Corporation (BAC) by Chicago-based Asset Management Fund (AMF) in the New York State Supreme Court. BofA has been accused of providing flawed information regarding the loans that were backing $239.5 million worth of residential mortgage-backed securities (RMBS).
AMF alleged that BofA issued misleading statements and omissions related to RMBS and concealed the risks associated with these securities. Further, the documents used in offering the securities contained untrue statements or omissions, about the actual hazards involved in these investments.
BofA is not the only bank that has recently been hauled to court by AMF. Last month, JPMorgan Chase & Co. (JPM) was sued by the company on similar charges. JPMorgan was accused of giving faulty data on $515.6 million worth of RMBS. AMF had bought these securities in the period 2003-2007.
Also, last month, Sealink Funding Ltd., an Ireland-based investment firm, filed a lawsuit against a number of Wall Street giants including BofA, Citigroup Inc. (C) and JPMorgan over RMBS, seeking $949 million in damages related to banks’ alleged false representations. The complaint lodged claimed that these banks misrepresented documents as the underwriters in the sale of mortgage-backed securities.
Our Viewpoint
This is not the first time BofA has been legally charged over the sale of RMBS using flawed information. Over the last several quarters, the company has been busy settling various lawsuits that were flied against its Countrywide Financial Corp. unit. These lawsuits and settlements have been negatively impacting the company’s financials and are expected to further dent its financials in 2012.
BofA currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we maintain our long term Neutral recommendation on the stock.
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