NEW YORK (TheStreet) -- Bank of America (BAC) is somewhere between $16 and $22 billion short on its reserves for mortgage backed securities (MBS) litigation, according to legal and accounting experts hosted on a recent conference call by CLSA analyst Mike Mayo.
At issue is a proposed $8.5 billion settlement between the bank and 22 institutions, including Goldman Sachs (GS), BlackRock (BLK) and PIMCO over claims on $108 billion in mortgage backed securities. The eight-cents-on-the-dollar deal faces objections from AIG (AIG), three Federal Home Loan Banks and States Attorneys General of New York and Delaware.
The $8.5 billion figure is the work of RRMS, a three-person consulting firm in Midtown Manhattan, hired by Bank of New York Mellon (BK), the trustee that is supposed to be responsible for protecting the interests of bondholders.
According to a transcript of the call hosted by Mayo, the analyst said he was "shocked that such a small firm with such a short time in existence in an out-of-the-way area (Diamond District in NYC) would be responsible for deriving such an important number."Mayo added that the office is "in the part of town where pre-Giuliani [you] would certainly not go at night, and maybe be even careful during the day." Mayo encouraged the investors on the call to visit RRMS's offices, which I did (see the video embedded here if you're reading this story on TheStreet.com or otherwise by Googling "This 3 Person Office Could Save Bank of America $100B"). I also met Brian Lin -- a 15-year Wall Street and veteran who has worked at Lehman Brothers, Merrill Lynch and Nomura Securities -- and his two colleagues, Allen Gutterman and Vincent Spoto. "It makes no sense to me if you judge a person's ability by their office space," Lin told me. "I don't know what background he comes from, but I come from a humble background, so I feel safe -- especially in this area of town." Lin's work faced extensive questions from Isaac Gradman, the legal expert brought in by Mayo on the conference call. Gradman and Mayo mentioned Lin by name a few times during the call, and he has been subjected to similar scrutiny in the past.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV