Bank of America Corp's $8.5 billion settlement to clear up its mortgage bond mess isn't a done deal and could be challenged - if the large number of investors locked out of negotiations could organise. The deal was struck with trustees for $424 billion of mortgage bonds and has the backing of 22 institutional investors including Pacific Investment Management Co (PIMCO), the world's largest bond fund manager, and Blackrock Inc.
But the pact needs court approval, and investors who were on the sidelines are being urged by an advocate to put up a fight or else accept the settlement. "The numbers are silly small," said Bill Frey of Greenwich Financial, a firm that structures asset-backed securities. He has been organising mortgage bond investors such as pension funds and hedge funds to demand Wall Street banks buy back soured home loans that were packaged into bonds.
"This settlement is an attempt to whitewash the problem," said Frey. He said angry investors are bombarding him with emails about the deal. Frey said the silver lining of the settlement offer is that it should force a resolution - either the majority of investors in the bonds at the centre of settlement accept it, or they fight for a better deal. The agreement requires approval from the New York State Supreme Court because the 530 trusts covered by the settlement are governed by state law. The case was assigned to Judge Barbara Kapnick on Wednesday.
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