NEW YORK (
Bank of America
(BAC - Get Report) CEO Brian Moynihan is facing a May 18 deadline to give testimony in a lawsuit brought by
(MBI - Get Report), an event that will put increasing pressure on the bank to reach a settlement expected to cost some $2 billion, according to an analyst following the legal battle.
MBIA has sued Countrywide Financial, accusing the lender of fraudulently inducing MBIA to insure 15 separate securitizations of residential mortgages sold between 2004-2007. Bank of America acquired Countrywide in 2008.
|Bank of America CEO Moynihan must testify about the bank's integration of Countrywide Financial by May 18
New York State Supreme Court Judge Eileen Bransten ruled last month that Moynihan's testimony is necessary because he oversaw the integration of Countrywide into Bank of America, and MBIA argues Bank of America is liable for Countrywide's alleged fraud.
The judge's ruling states that "the knowledge Moynihan gained as part of the
Steering Committee is unique, and it is material and necessary to MBIA's successor liability claim."
BTIG analyst Mark Palmer believes a settlement would likely be worth some $2 billion, and "could literally come at any time."
"Bank of America would be acting in a manner that's not in the best interests of its shareholders or its employees if it continued its litigation," Palmer said.
Palmer sees Moynihan's scheduled testimony as one of several risks to Bank of America from allowing the litigation to continue.
"There's downside from having Moynihan testify on the issue of successor liability and having that information potentially used by others who are suing B of A and also arguing it is liable for Countrywide's actions," Palmer says.
Palmer believes Bank of America could see its reserve against mortgage securities it must buy back from investors balloon from its current level of $16 billion to as large as $80-100 billion if litigation with MBIA establishes precedents that can be picked up by other plaintiffs facing off against the bank.
Palmer's belief that MBIA can force Bank of America to settle for roughly $2 billion is the key to his "buy" rating on the bond insurer, which is scheduled to report earnings after the close of trading Thursday. Palmer has a $22.50 price target on MBIA versus its close of $9.60 on Monday.
A Bank of America spokesman declined to comment.
Written by Dan Freed in New York
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