BofA to Settle for $8.5 Billion

We all remember those cartoons we watched as kids. There would always be a scene that exemplified the tip of the iceberg. Usually some clown would holler in a mountain range causing an avalanche or something to that effect. The comedic high jinks which ensued were both entertaining and note worthy. We learned a lesson and we had a good time learning it.

I wonder if it will be so with the banking industry? With news surfacing that Bank of America is preparing to pay $8.5 billion in damages relating to MBS sales, the iceberg may tip, flip and flood all of Wall Street in a very short amount of time.

Who would have thought before little Hugh McColl took the Nations Bank of North Carolina from local player to global powerhouse, that Charlotte would have the attention of the financial universe. Well, so it is this week as bankers from Manhattan to Minneapolis to MENA hold their collective breaths.

According to Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel:

If you're an investor, you now know this is a potential lottery ticket, and the only way you lose is by not playing. You have to think this is the first settlement we'll be seeing in a long line.

The largest U.S. bank by assets has been fighting claims by a group of 22 investors over the housing-related securities it packaged and sold before the financial crisis.

This investor group includes BlackRock Inc, MetLife Inc and the Federal Reserve Bank of New York, in a dispute dating back to the fall. It had threatened to take the matter to court, but both sides delayed a trial early this year to continue settlement negotiations.

This reminds me of a Ken Lewis story I have told before. I sat at a seminar where he was the keynoter not a full week after BofA picked up Countrywide. When asked how he plans to deal with the toxicity of Countrywide’s assets and his own company’s MBS issues, Lewis scoffed and said “we are in a great position to meet the needs of our shareholders.”

I guess some think of the tip as a wonderful thing, when they know they won’t be around to face the iceberg. I don’t know if the folks in Charlotte are all religious, but may God help them all.

With the chickens coming home to roost and every other cliché imaginable ready to jump out of the woodwork, things are not looking good for anyone who ever sold a mortgage backed security right now.