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Updated from 12:22 p.m. ET with additional details from Wednesday's conference call and the February ruling involving Flagstar Bancorp and Assured Guaranty.
NEW YORK (
Bank of America(BAC - Get Report) set aside additional funds to cover legal exposure tied to monoline bond insurer
MBIA(MBI - Get Report), according to remarks by CFO Bruce Thompson on the company's first-quarter earnings conference call.
Bank of America and MBIA have been locked in
lengthy litigation tied to mortgages sold by Countrywide Financial, which Bank of America acquired in 2008. Analysts who follow Bank of America and others who cover MBIA eventually expect a settlement in the range of $2 billion to $3 billion, but so far a deal has taken longer than most expected.
Nonetheless, a ruling in a similar case against
Flagstar Bancorp(FBC - Get Report) in a suit brought by
Assured Guaranty(AGO - Get Report)was widely seen as favorable to MBIA. The February ruling by Jed Rakoff, a judge for the U.S. Southern District of New York, ordered Flagstar to pay monoline Assured Guaranty $90.1 million in damages in a dispute over mortgage-backed securities (MBS) worth more than $900 million at issue.
Bernstein Research analyst John McDonald alluded to the settlement in a question to Thompson during Wednesday's call, asking why Bank of America hadn't increased its range of possible losses above existing accruals for MBS litigation exposure. It remains at $4 billion, which is what is was at the end of the fourth quarter.
"You should assume there was additional monies during the quarter in litigation expense that was set aside for the monolines," Thompson told McDonald.
While Thompson did not say specifically that MBIA was the monoline insurer to which he was referring, he had said in response to a previous question that of the three "significant" monolines the bank did business with, it has settled with two. He then added that "the one that obviously gets a lot of press is MBIA that continues to be out there."
Thompson's comments were cited in a report Wednesday by BTIG analyst Mark Palmer, who has been recommending MBIA shares.
Palmer wrote that Thompson's comments "should have caused investors in buy-rated MBIA to perk up."
Bank of America has $900 million in additional litigation expenses in the first quarter, though part of that figure consisted of a
settlement of an "independent foreclosure review" involving 13 mortgage servicers and U.S. banking regulators over servicing issues.
MBIA shares were down 1.60% to $9.85 in early afternoon trading on Wednesday.
An MBIA spokesman declined to comment. A call to a Bank of America spokesman was not returned.
Written by Dan Freed in New York.