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Bank of America $8.5 billion settlement a 'win' for investors, lawyer says

A man walks next to a Bank of America's branch in New York October 24, 2012. REUTERS/Eduardo Munoz

By Karen Freifeld

NEW YORK (Reuters) - A lawyer for an investor group on Monday urged a judge to approve Bank of America Corp's proposed $8.5 billion settlement over mortgage-backed securities that soured in the financial crisis, noting that not one investor testified against the deal in a nine-week proceeding.

Kathy Patrick, a lawyer for a group of institutional investors who entered into the settlement, was summing up the case in New York state court in Manhattan.

Bank of America agreed to the settlement in June 2011 to resolve claims over shoddy mortgage-backed securities issued by Countrywide Financial Corp, which the bank acquired in 2008.

Twenty-two institutional investors, including BlackRock Inc, MetLife Inc and Allianz SE's Pacific Investment Management Co, signed onto the accord.

Opponents of the settlement, whose numbers have dwindled, are led by American International Group Inc.

Justice Barbara Kapnick of New York State Supreme Court must decide whether to approve the deal, which would be binding on all investors. It is unclear when she will rule.

In court on Monday, Patrick pointed out that, after nine weeks of testimony, no investor had taken the stand and asked the judge not to approve the settlement.

"How could you possibly reject this settlement as unreasonable when not one of the investors has testified that it is," Patrick, a partner with Houston-based Gibbs & Bruns, implored the judge.

Patrick's closing statement followed a summation by Matthew Ingber, a lawyer representing Bank of New York Mellon, the trustee overseeing the securities, which also entered into the accord.

Objectors to the settlement will present their closing arguments on Tuesday.

"Approval of this settlement is a win for all certificate holders," Ingber told the judge. He said the proceeding had provided "overwhelming support" for the trustee's decision to agree to the deal.

The $8.5 billion was "almost double" what Countrywide could possibly have paid if the case was litigated, said Ingber, of the global law firm Mayer Brown.

Countrywide had a maximum of $4.8 billion in assets for a judgment on any claims, and some two dozen court decisions show Bank of America likely would not be held responsible for Countrywide's liability, Ingber said.

"If we didn't lock in $3.7 billion more than Countrywide could pay under the best case scenario, we'd be lining up with every other plaintiff against Countrywide," Ingber said.

The settlement also calls for some $3 billion worth of improvements in loan servicing, including transferring high-risk loans to subservicers, Ingber said.

Opponents to the deal now number 15, down from 44, Ingber said, and constitute less than 7 percent of certificate holders in the 530 trusts covered by the accord. The rest support the deal through the trustee and investor group, he said.

In other words, 93 percent of securities holders support the settlement, the attorney argued.

The Federal Home Loan Banks of Boston, Chicago and Indianapolis withdrew their opposition on November 1, as did hedge fund Cranberry Park.

The attorneys general of New York and Delaware, who intervened in the case two years ago, said in May they would not block the deal.

Twenty-two witnesses testified and 235 documents were entered into evidence during the nine-week proceeding, which has taken place intermittently since June.

The $8.5 billion deal has been viewed as a template for other banks to put behind them claims that they misrepresented the quality of mortgages underlying securities in the run-up to the financial crisis.

JPMorgan Chase & Co on Friday said it agreed to pay $4.5 billion to settle claims by investors who lost money on mortgage-backed securities issued by the bank and Bear Stearns, which it took over in 2008.

The case is In re Bank of New York Mellon New York State Supreme Court, New York County, No. 651786/2011.

(Reporting by Karen Freifeld; Editing by Phil Berlowitz and David Gregorio)