Business

Bank Notes

Bank of New York Mellon sues Countrywide

Bank of New York Mellon Corp., the world's largest custodian of financial assets, sued Bank of America Corp.'s Countrywide Financial Corp. seeking repayment of $2 billion in notes.

Countrywide failed to inform holders of its Series B floating rate convertible notes due in 2037 that its acquisition by Bank of America on July 1 gave holders the option to keep the notes or cash them in, lawyers for BNY Mellon said last month in a complaint filed in Delaware Chancery Court in Wilmington.

Countrywide was required to mail notices explaining the changes by July 16, according to the complaint. BNY Mellon filed the suit as trustee for the holders of the notes.

“Bank of America has not assumed or guaranteed the liabilities of Countrywide, including the liabilities owed by Countrywide under the indenture, and in fact has stated that it will not do so,” lawyers for BNY Mellon said in the complaint.

Bank of America Chief Financial Officer Joe Price said July 21 that the company doesn't plan to back public debt issued by Countrywide. Bond investors are concerned that Bank of America may absorb the best assets of Countrywide while the debt remains with a new company created by the merger, Red Oak Merger Corp. The investors speculated that Red Oak could then file for bankruptcy, shielding Charlotte-based Bank of America from liability. Previous filings have shown Countrywide had about $38 billion in outstanding debt.

Bank of America spokeswoman Shirley Norton said the company hadn't seen the lawsuit and couldn't comment.

Bloomberg News
  Comments