Don't assume that Bank of America Corp. has blinked.
On Wednesday the company said it was holding "constructive" talks with a small group of highly influential holders of its private-label MBS, who had accused BofA failing to uphold its obligations as a servicer. Only two months earlier, BofA's chief executive, Brian Moynihan, had quipped that unhappy holders of such bonds were akin to Chevy Vega owners demanding Mercedes-level performance.
So BofA's willingness to hold a dialogue could be interpreted as a grudging admission that investor claims have enough merit to warrant an early resolution at the right price.
But the elite membership of the group with which BofA is talking — among which are asset manager BlackRock, the bond giant Pacific Investment Management Co. (PIMCO), and the Federal Reserve Bank of New York — also suggests the company could eventually seek to placate the most powerful bondholders, dividing investors and derailing more unified claims.
On Thursday, Bank of America spokesman Lawrence Di Rita said that the significance of the announcement should not be overblown. "Our strategy is unchanged in respect to these investors," he said, dismissing further speculation. "All this does is stop a legal clock from ticking for now."
Some investors on Thursday said they believed that a split among bondholders was occurring even before the group's discussions with Bank of America were revealed. Led by attorney Kathy Patrick of Gibbs & Bruns, the group's formation in August presented an alternative to an investor clearing house approach in which investors of all sizes would be welcome. (Countrywide Financial Corp., which B of A bought in 2008, issued the securities that the Patrick group's members hold.)
"I have no reason to believe [the Patrick group] is doing anything other than screwing everybody else," said one investor who wished to remain anonymous to avoid causing further conflict.
Before the group filed its notice of nonperformance, this investor said, there had been talk of a more inclusive effort. But "at the very last minute, BlackRock and PIMCO went out on their own," the person said, adding that he hoped news of the negotiations would spur bondholders who have been waiting to follow the lead of entities like PIMCO and BlackRock.
Patrick could not be reached on Thursday to speak about the investor's theory. BlackRock declined to comment, and Pimco did not respond to requests for comment late Thursday.
Such a schism would be good news for BofA, though some analysts covering the company said plenty of other good reasons exist for the company to hear out the investor group.
"We've heard that the Fed is concerned about the private-label liabilities" at BofA," said Paul Miller, a managing director at FBR Capital Markets. "And I think if BofA wants to pay a dividend, the Fed might say, 'Why don't you clear this up?' That might change their stance a little." (Last week, Moynihan told a conference that BofA did not "see anything that would stop us" from raising its payout in 2011, pending regulatory approval.)
Chris Whalen of Institutional Risk Analytics cited the preliminary nature of private-label investor suits as giving Bank of America leverage should it decide to pursue a negotiated solution seriously.
Private investor suits would be in some cases years behind similar claims filed by insurers, Fannie Mae and Freddie Mac and even the Federal Home Loan banks, and they would face numerous procedural hurdles.
Investors might prefer to settle cheaply rather than wait in line. "What Bank of America could say to these guys is, 'Look, you're two years behind the lead litigants here,' " Whalen said. "Talk to me, because if I can settle the claim quickly, that's worth something."