Insurance giant Allstate (ALL) is suing Bank of America (BAC) and its Countrywide Financial division over Countrywide's sale of $700 million in mortgage-backed securities to Allstate, alleging that Countrywide knew in advance that the assets would drop in value because of a high percentage of defaults.
Allstate, which filed its claim in a Manhattan federal court on Monday, is seeking unspecified damages in its complaint, which stemmed from Countrywide's sales of the securities between 2005 and 2007, Allstate said in a statement on Tuesday. The company accuses Countrywide of violating its own mortgage underwriting standards starting in 2003 in order to boost its mortgage business. BofA acquired Countrywide in 2008 after it nearly collapsed during the financial crisis.
"This unfortunately appears to be a situation where a sophisticated investor is looking for someone to blame for a downturn in the economy and losses on an investment it made," BofA said in a separate statement today. The company is still reviewing the complaint.
Misrepresentations and Omissions
BofA continues to be affected by the fallout of the mortgage meltdown. The company is one of a number of U.S. institutions that said last month that they may incur costs defending lawsuits from investors in their mortgage-backed securities. BofA in particular said it's a defendant in cases alleging that documents relating to more than $375 billion in mortgage-backed securities may have contained misrepresentations and omissions, and failed to meet underwriting standards.
Countrywide co-founder Angelo Mozilo in October reached a settlement agreement with the Securities and Exchange Commission related to charges of insider trading and civil fraud, allowing him to avoid standing trial. Mozilo will reportedly pay $67.5 million in fines. BofA wasn't charged by the SEC.
Its shares were about flat at $13.34 near the close of trading Tuesday on the New York Stock Exchange. Allstate shares were little changed at $32.02.