NEW YORK (TheStreet) -- Justice delayed sucks, if you think you got away with it.
Wells Fargo , which dominates the mortgage market and has sometimes taken one-third of it, must have figured it was past the market's problems after signing off on the $25 billion national industry settlement in 2011, dealing with charges against mortgage holders during and right after the Great Recession.
But ambitious New York Attorney General Eric Schneiderman wants the bank back in court, claiming it didn't meet obligations under the settlement, which included loan modifications, principal reductions and short sales.
To a banker, loan modifications and principal reductions are among the hardest words in the language to read. They seem like a violation, and the bank is always the victim.
This time, Wells Fargo is the only bank before the New York bar. Its co-defendant, Bank of America , had its New York suit dropped after promising to do better. Wells Fargo disputes the new charges.
While Bank of America came out of the 2008 crash with low-grade assets like Merrill Lynch and Countrywide Financial, Wells Fargo was able to pick off Bank of America's healthier North Carolina rival, Wachovia, for a market price of $14.8 billion. Bank of America had tried to buy Wachovia for $2.1 billion, a good bank to make up for the bad banks it was taking.
History has shown Wells Fargo did some smart business there. Wachovia gave it a nationwide reach and put it into the money center major leagues.
Thus, among all the largest banks, Wells Fargo is the only one that has generally traded at a substantial premium to its book value since the crash. It currently trades at about 1.47 times book, which is more than double the ratio of Bank of America, still struggling to hold .70. (JPMorgan Chase and Goldman Sachs trade at about their book value; Citigroup at .77 times book.)
I like to call book value the "Mendoza Line" of banking, because it's a barely acceptable figure, like the Pirate shortstop Mario Mendoza, who hit .200 yet stayed in the show for a decade. (Go Pirates.)
Wells Fargo's value by this metric is closer to that of well-run regional banks like Prosperity Bankshares , Athens Bancshares and First Interstate Bank . It's an indication of the respect investors have for how Wells Fargo does business, something our Jim Cramer has remarked upon repeatedly, even during the darkest days of 2008.
So you can see Schneiderman's suit as an attack on this reputation, or you can see Wells Fargo's vigorous defense of itself as a defense of that reputation, depending on which side of the bank counter you're on.
It's not that Wells Fargo is unwilling to settle. It's giving Freddie Mac $780 million over charges dating back to before 2009. The bank estimated in August its losses on charges against its handling of mortgages could total $2.2 billion. It is due to report earnings again next week.
What investors will be focusing on with earnings are not the charges per se, but the bank's dominance in mortgages, which it says it's trying to reduce as the housing market cools with higher rates. The bank was especially big in refinancings, which have come way down this year.
Lean's great. Mean can still get you sued, even years afterward. That's the lesson Schneiderman is trying to bring home. The question is just how hard it will hit a stock that's up 20% for the year -- it was down to $40.39 premarket -- and if so, whether it might turn Wells Fargo into a bargain stock again.
At the time of publication, the author owned 200 shares of BAC and 235 shares of PB.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.