Bank of America's Countrywide Tab Could Increase by $2B: Analyst

NEW YORK ( TheStreet) -- Bank of America ( BAC), may end up paying about $2 billion to settle a legal dispute with MBIA ( MBI) following a ruling in MBIA's favor on Tuesday, according to an analyst who has been following the case.

MBIA has accused Bank of America's Countrywide home loan unit of fraud and breach of contract related to 15 mortgage securities. In separate litigation, Bank of America is one of five remaining banks out of an original 18 that sued MBIA over a 2009 restructuring of the company.

A settlement between the two companies is widely expected, leading to both lawsuits being dropped, as happened last month with similar cases involving MBIA and Morgan Stanley ( MS).

BTIG analyst Mark Palmer, who follows MBIA, believes a payment of about $2 billion from Bank of America to MBIA would be enough to make both cases go away.

"Could the figure be higher than $2 billion? It could, but I think that if there were an announcement wherein MBIA received $2 billion and the fraudulent conveyance case was dropped, that would be a successful outcome for both sides," Palmer says.

In filings with the Securities and Exchange Commission, MBIA recorded $2.8 billion it expected to recover from litigation against Bank of America, Credit Suisse ( CS), Morgan Stanley and Allied Irish Banks ( AIBYY), but management told analysts on the company's Nov. 10 third quarter conference call it has paid out $5 billion in claims so far

"When the cases are finally resolved, we expect to recover the vast majority of our losses, not just those for which we have already recorded a recovery," MBIA CEO Jay Brown told analysts on the call.

Neither the $2.8 billion nor the $5 billion number are sufficient to assess the potential cost to Bank of America, however. While Bank of America's Countrywide unit has far outstripped other lenders in racking up litigation costs, it has not been disclosed how much of MBIA's claims came from Countrywide loans. Further, MBIA has not yet updated its disclosures regarding the disputed mortgage securitization claims payments to reflect the Morgan Stanley settlement.

In a Nov. 3 filing, Bank of America disclosed it had about $3 billion in unresolved claims from monoline insurers such as MBIA as of Sept. 30, though it expects additional claims.

Spokesmen for MBIA and Bank of America declined to discuss the likelihood or potential terms of a settlement.

-- Written by Dan Freed in New York. Follow this writer on Twitter.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

If you liked this article you might like

MBIA Unit's Credit Rating Drop Suggests A Sale or Activist Could Be Next

MBIA Unit's Credit Rating Drop Suggests A Sale or Activist Could Be Next

Bullish & Bearish Reversals for the Week

Bullish & Bearish Reversals for the Week

Bullish and Bearish Chart Reversals

Bullish and Bearish Chart Reversals

Mortgage Insurers Catch the Eye of EJF Capital

Mortgage Insurers Catch the Eye of EJF Capital