Was the "worst merger in Wall Street history" a merger at all?
A judge's answer to that question will go a long way towards determining if the more than $40 billion (and counting) that Brian Moynihan & Co. have already paid in penance (and write-downs and legal fees, etc.) for the albatross that was and is the "world-class" company known as Countrywide is enough, or if MBIA is entitled to some billions of its own.
In a two-day hearing Wednesday and Thursday, BofA argued it structured its 2008 deal with Countrywide in a way that allowed it to avoid liability for certain Countrywide assets, branded "too toxic" in one internal bank email….
During the proceeding, Bank of America has maintained that the Countrywide deal was structured as a purchase of assets rather than a merger, and that it paid a fair value of more than $45 billion for the assets it acquired, leaving plenty of cash and viable assets in what remained of Countrywide to satisfy creditors' claims.
"Bank of America was not liable for Countrywide's debts when it bought Countrywide's assets," Walter Dellinger, a partner at O'Melveny & Myers in Washington, D.C., who is representing the bank, said in court. As to whether BofA intentionally designed the deal that way to avoid liability, Mr. Dellinger said: "Of course it did."
Too bad Brian, his predecessor, the immortal Ken Lewis, and other BofA execs. couldn't keep their mouths shut.
MBIA said the deal was in fact a merger in which BofA absorbed 19,000 Countrywide employees, technology and operations to enhance its mortgage capabilities. The insurer introduced videotaped deposition testimony from executives including former Chief Executive Ken Lewis and current CEO Brian Moynihan to bolster its case.
"The objective was to present a common set of products and a common brand to our combined set of customers," Mr. Lewis said in an April 2012 deposition aired in New York state Supreme Court in lower Manhattan Wednesday.
"We combined operations," Mr. Moynihan said in his own May 2012 deposition played in court. "I don't know what [Countrywide] businesses are in what legal entities."
This most recent round of the mudslinging contest that is MBIA v. BofA comes just days after BofA ponied up $11.6 billion to make nice with Fannie Mae. But, according to BofA, Fannie was willing to play ball; if MBIA would stop throwing its temper-tantrum, it's sure a deal is there to be had.
"We have established a pattern of settling legacy matters with reasonable parties, including other insurers, when it is in the best interest of our shareholders," said Lawrence Grayson, a spokesman for Bank of America. "That remains our approach."
In Court, Bank of America Seeks to Avoid 'Toxic' Countrywide Liabilities [Dow Jones via Fox Biz]