Bank of America's $8.5 billion settlement with investors over poor-quality mortgage bonds is facing a new challenge.
On Tuesday, a group of bond investors calling themselves Walnut Place said they objected to the terms of the settlement. In a filing with the New York Supreme Court, the investors said they wanted to be excluded from the settlement that was struck after negotiations between the bank and 22 institutional investors such as BlackRock Inc., the Federal Reserve Bank, and Pimco. The settlement was meant to cover a broader group of investors being represented by a trustee.
The Walnut Place group said the 22 investors were self-appointed and didn't represent or solicit the views of the broader group of bondholders. The group also said the talks were held in secret.
A Bank of America spokesman Lawrence Grayson said in a statement that the conversations between the bank and investors were publicly disclosed and were far from secretive. "The settlement agreement was designed to give certificate holders, like those behind the Walnut Place entities, an opportunity to have any objections heard," the statement read.
The statement also said the institutional investors represented by the Federal Reserve and BlackRock had a fiduciary responsibility to their investors. "It is difficult to believe that those entities somehow put Bank of America's interests ahead of those of their own investors."
If the New York court allows Walnut Place investors to be excluded from the settlement, it could pave the way for other investors to seek their own settlements.
That would be a setback for Bank of America. Last week, the settlement was hailed as a significant step in the bank's ability to put its mortgage woes behind it. The bank had been fighting several lawsuits from investors over its poorly-written mortgages. The uncertainty surrounding the outcome of the lawsuits had been a drag on the stock. Bank of America had declined 31 percent since January of last year when Brian Moynihan took over as CEO.
On the day of the settlement Bank of America's stock climbed 3 percent. On Tuesday, it was down 9 cents, to $11.