NEW YORK ( TheStreet)-- Bank of America (BAC - Get Report) shareholders may feel like they can start breathing easier now that, thanks to a lawsuit unveiled Tuesday by New York Attorney General Eric Schneiderman , the spotlight for mortgage-related bad behavior has shifted for the moment to JPMorgan Chase (JPM - Get Report), but JPMorgan's troubles could end up making matters even worse for the beleaguered bank from Charlotte.
Bank of America is embroiled in litigation with monoline bond insurer MBIA (MBI - Get Report) over shoddy mortgages underwritten by Countrywide Financial, which Bank of America bought in 2008. Among the determinations New York State Supreme Court Justice Eileen Bransten will have to make in the case is whether Bank of America is liable for the actions of Countrywide prior to acquiring the company. She will hear oral arguments on primary liability (Countrywide's) on Nov. 14 and 15 and on successor liability (Bank of America's) on Dec. 5 and 6, according to a report from BTIG analyst Mark Palmer.
In Schneiderman's case, the Attorney General is arguing JPMorgan is liable for the actions of Bear Stearns prior to its acquisition by JPMorgan in 2008.
Palmer argues "Schneiderman's boldness in asserting JPMorgan's successor liability may create an atmosphere in which Bransten may be less likely to let BAC off the hook for Countrywide's actions."Further, he believes Schneiderman could very well target Bank of America himself. "Given the role that Countrywide had played in the mortgage market in the run-up to the financial crisis, and the number of mortgage putback-related lawsuits that have been aimed at Bank of America/Countrywide, what are the odds that the bank will be the next target of Schneiderman's group? And that the New York Attorney General would use the successor liability argument he is employing against JPMorgan to target Bank of America," Palmer writes, adding, "we wouldn't want to bet against the likelihood of a headline to that effect leading the business news in the near future." -- Written by Dan Freed in New York. Follow @dan_freed