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2. Bank of America wins legal victory for MBS settlement

When it comes to litigation liability, Bank of America seems to lose ground, even as it gains ground.

The troubled bank recently announced a settlement that resolves its thorny legal dispute with bond insurer MBIA, only to face possible legal action by states over violations of the National Mortgage Settlement and now the likelihood that AIG will pursue a massive $7 billion fraud claim. At issue are losses on toxic assets that the bank sold under duress after the government bailed out AIG in 2008.

AIG sued Bank of America over fraudulent mortgage securities, but the bank argued that AIG "had no standing to sue because it had transferred that right when it sold the instruments to the Federal Reserve Bank of New York in the fall of 2008."

A federal judge in California, however, disagreed.

The New York Times notes that, "She sided with A.I.G. in a ruling that also raised questions about the role of the Federal Reserve Bank of New York in the wake of its efforts to contain the huge damage from the financial crisis that erupted when Lehman Brothers was forced into bankruptcy in September 2008."

It's unclear whether the Fed intended to pursue fraud claims related to the toxic securities.

The Times notes that, "The New York Fed never filed any claims against banks relating to the A.I.G. rescue that might have benefited taxpayers. New York Fed officials agreed to testify on behalf of Bank of America as part of a confidential settlement with the bank that came to light in February. Under the terms of the deal, the New York Fed released Bank of America from all fraud claims on mortgage securities the Fed had bought."

AIG says it will proceed with its legal efforts against Bank of America. It might sue other banks as well.

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By Jim Kim

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3. What does it mean to be a Swiss bank?

Bank of America has scored a big legal victory in its battle to secure approval of a controversial $8.5 billion settlement with select bond holders over allegedly tainted MBSs. The settlement, which was announced two years ago, was considered a coup for the bank, but bond holders not party to the original settlement voiced huge reservations and attorneys general in New York and Delaware opened investigations.

But New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have announced that they will no longer attempt to block the settlement.

"Our intervention in this matter helped ensure a full, thorough and transparent process," the New York AG's office said in a statement. "As a result, what remains is a commercial dispute among sophisticated parties who are well represented."

The FHFA has also withdrawn its objections.

One issue for the states was disclosure of information that led to the deal. At the time, Bank of New York Mellon, the trustee that struck the deal among the parties, was offering "minimal disclosure" to investors, as noted by Bloomberg Businessweek. After a storm of private litigation, however, that situation has changed dramatically.

The issue will still be resolved in private litigation, and there's no guarantee that Bank of America's original settlement will remain intact. A judge will pick up the case again on May 31.

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Read more about: MBS, Legal Settlement
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By Jim Kim

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4. JPMorgan board: still time to cut a deal?

Swiss banks have been irrevocably altered, as this publication has made abundantly clear.

Other countries -- the U.S. as well as Germany and France -- simply weren't going to put up with Swiss banks aiding and abetting tax cheats. While the Swiss gamely put up some resistance, it was clear that it was of the token variety only.

While much of the world applauds the change, it's easy to underestimate how profound this shift has been for the country.

Secrecy has long been part of the industry's -- and indeed the country's -- core personality. Reuters does us all a favor by taking a deeper look at all this, noting that as far back as 1747, a bank sign on display in UBS's museum, promises: "MASSIMA DISCREZIONE," or "utmost discretion." That promise endured for centuries, couched as a service to the Swiss people and to the world.

Reuters noted as well that, "Swiss bankers have long adhered to an unwritten code similar to that observed by doctors or priests. Bankers do not acknowledge clients in public for fear of exposing them as account holders; they often carry business cards with just a name, rather than bank or contact details; and, at least until the 1990s, they never advertised abroad."

The article continues, pointing out "That code was written into law after 1932, when French police arrested two Swiss bankers who were entertaining members of Parisian high society in an apartment near the Champs Elysees. The police seized a list bearing the names of hundreds of French clients who had hidden their wealth in secret accounts, including two bishops, several generals, top industrialists, two newspaper magnates and several politicians. The ensuing scandal helped usher in the Swiss Banking Act, which made it a punishable offence for bankers to divulge information on their clients unless they suspect a crime."

There have been some seamy episodes in the history of Swiss banking, Reuters notes.

"Neutral Switzerland's self-image as a safe haven for the persecuted and their assets was punctured in the 1990s, when a national commission found it had refused entry to many Jews escaping the Nazis. Its banks had even emptied Jewish accounts left dormant after World War Two."

What's interesting is that a nationalist movement has sprung up in the country to oppose the foreign influence on its banks. It must indeed be hard for old-timers to watch the likes of Wegelin &Co., the country's oldest private bank, be indicted by American prosecutors on tax evasion-related charges. But the old-guard's voice seems increasingly tired. The past will not be brought back anytime soon.

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By Jim Kim

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5. Mike Mayo rates JPMorgan "underperform"

The JPMorgan (NYSE:JPM) board has been very vocal with shareholders in its support for the current executive structure of the bank, with Jamie Dimon maintaining the titles of Chairman, CEO and President.

But as the days tick down to the May 21 annual shareholder meeting, the board might be wise to acknowledge the fact that prevailing on this issue will not be easy. It is certainly not bargaining from a position of strength right now.

Glass Lewis, a major proxy advisory firm, has apparently decided to support the resolution to split the two top jobs, joining ISS, which not too long ago offered a detailed analysis of why the position should be split. Both are also opposing specific risk and audit committee members. Another firm, Egan Jones, however, has broken ranks to support the status quo.

The fact that proxy advisory firms support the split is not surprising news, as they take this position as a matter of course. But there's still plenty for directors to fear. ISS has also taken aim at three-fourths of the risk policy committee, which it sees as woefully under-experienced in this area. All this is taking place against a backdrop of notable enforcement issues that remain unresolved.

So the question has to be asked: is there still time for the board to cut a deal? The answer is yes, without a doubt.

Reuters notes that of the two top shareholders in the bank, one is set to vote for the resolution no matter what. The other one is on the fence, however. The investor group said it will "likely encourage the bank to give more authority to its lead independent director, former ExxonMobil Chief Executive Lee Raymond. At JPMorgan, the lead director is currently known as the 'presiding director,' a role that includes approving board agendas and schedules and leading meetings of independent directors."

That's the ticket for the board. If this role can be enhanced to their liking, they'll likely relent, as will other shareholders.

On proxy issues, JPMorgan would do well to follow the example of Goldman Sachs, which has negotiated with shareholders in ways that take controversial resolutions off the table.

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Read more about: shareholders, CEO
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By Jim Kim

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