At the very minimum if the value of your asset declines you take a hit. Of course this asset now has a negative value.
If it is a totally separate legal entity that BoA just happens to own 100% of that might shield BoA from direct liability, but there is a chance it wouldn't. Either way it has nothing to do with fraud by Countrywide. If Countrywide had completely merged in to BoA, then BoA would be liable fraud or no fraud.
A little research shows that (at least as of last year, the article isn't that recent) BoA is just the owner of Bank of America Home Loans, its not (or at least wasn't) a fully merged entity, and BoA did not assume liability. but its not necessarily totally free from liability.
---
...Unfortunately for Bank of America, it didn’t keep things so neat when it acquired Countrywide. Instead, Bank of America engaged in a number of complex transactions to consolidate Countrywide into its operations.
The complaint filed by A.I.G. against Bank of America describes these transactions: On June 2, 2008, Countrywide Home Loans, a subsidiary of Countrywide Financial, sold Countywide Home Loans Servicing, another subsidiary, to NB Holdings, another subsidiary that was wholly owned by Bank of America. Bank of America paid Countrywide Home Loans for this sale by issuing it a note for $19.7 billion. Countrywide Home Loans Servicing was the actual subsidiary of Countrywide that serviced almost all of Countrywide’s mortgage loans. Countrywide Home Loans also sold a pool of residential mortgages to NB Holdings for $9.4 billion. On Nov. 7, 2008, Countrywide Home Loans sold the rest of its assets to Bank of America for $1.76 billion.
Separately, Bank of America also acquired notes worth $3.6 billion from Countrywide Financial’s bank and the equity in a number of other Countrywide subsidiaries. Bank of America also assumed $16.6 billion of Countrywide’s debt and guarantees.
If the A.I.G. complaint accurately describes these transactions, it means that the net effect was to leave Countrywide Financial and Countrywide Home Loans without assets, except the $11.16 billion payment and the $19.7 billion and $3.6 billion notes ($34.46 billion total). Countrywide’s liabilities stayed with the Countrywide.
Bank of America turned Countrywide into a shell with assets of $34.46 billion, part of it in the form of loans from Bank of America. Once the settlements exceed this amount, Countrywide is out of money. Again, the exact amount is uncertain and this is an approximation, but it appears that Countrywide’s remaining assets are rapidly being subsumed by litigation claims and other liabilities related to the financial crisis.
The best strategy for Bank of America would appear to be to throw the old Countrywide into bankruptcy.
Normally this would be the end of the matter and Bank of America would not be liable for any of Countrywide’s debts.
However, in any bankruptcy proceeding, anyone with claims against Countrywide will argue that Bank of America fraudulently transferred out Countrywide’s assets. And there are other legal arguments, including that Bank of America should be liable for Countrywide’s debts because of these transfers. The A.I.G. complaint against Bank of America, for example, makes a similar claim, arguing that Bank of America is a successor in interest to Countrywide by virtue of these transfers.
The validity of these claims is hard to assess and will depend on how careful Bank of America was in transferring the Countrywide assets. If a court finds that Bank of America underpaid for these assets, Bank of America may be liable for some of Countrywide’s debts.
Bank of America thus still has residual exposure to Countrywide in a bankruptcy and a hefty litigation bill to fight off such claims.
Bank of America’s lawyers are likely poring over these transfers and assessing any liability in anticipation of just such a bankruptcy filing. The bottom line is that, unless Bank of America’s lawyers really messed up the transfers, Bank of America is far from insolvency itself, having the option of cordoning off this liability to a large extent through a bankruptcy filing. If nothing else, a Countrywide bankruptcy would tie this up in litigation for years if not a decades.
dealbook.nytimes.com
So it may escape liability, or at least most of it, but in order to do so it will likely have to go through a lot of expensive litigation, with the liability hanging over its head for years until it settled.
But that's as of last August. It may have come to settlements for some of the liability, which would have cost a lot of money, but dealt with part of the problem going forward. If anyone has any updates on that, please post them. |
