UBS seeks $200 million from BofA to cover old legal fees

UBS wants Countrywide Home Loans, a nonbank lender acquired by Bank of America in 2008, to pay it at least $200 million to cover some of the legal fees the Swiss bank had to dish out defending itself following the Great Recession.

The Swiss bank settled costly suits lodged by the Federal Home Loan Bank of San Francisco in 2010 and the Federal Housing Finance Agency in 2011 wherein both entities accused the company of selling them residential mortgage-backed securities with poorly underwritten loans.

The loans flagged as having misrepresentations were originally purchased by UBS from Countrywide. That makes the latter legally bound to "indemnify UBS for payments UBS made to defend against and ultimately settle litigation relating to the offer and sale of certain residential mortgage-backed securities backed by Countrywide's mortgage loans," a suit filed July 31 in the state of New York said.

The total tally in UBS' defense costs alone are at least $53 million, documents show. 

UBS declined to provide commentary, while Bank of America did not immediately respond Monday.

According to the filings, the UBS-FHFA settlement for "negligent misrepresentation" of RMBS, cost the investment bank $885 million and it also incurred over $40 million in defense costs "to achieve this favorable result."

"The 28 RMBS at issue included two certificates from MARM 2005-8 and four certificates from MARM 2007-3, all of which were primarily backed by Countrywide loans," the suit added.

Further, litigation lodged by the FHLB, which was settled for an undisclosed amount in 2016, cost UBS an additional $13 million in defending itself. 

Both legal items are covered by the indemnity provision of the Countrywide purchase agreement, UBS said.

"Because Countrywide originated the loans that FHFA and FHLB alleged were misrepresented, and Countrywide and CWALT provided all information in the offering materials that FHFA and FHLB alleged was false, Countrywide and CWALT were 100% at fault," UBS added in its suit.

Following the two settlements, UBS contacted Countrywide in 2019 to discuss indemnification for the FHFA and FHLB actions, the legal filing said.

Thereafter, UBS provided Countrywide with "substantial information supporting its claims, and the parties had extended discussions concerning them, but Countrywide ultimately refused to comply with its indemnification obligations."

UBS is seeking an indemnification award of no less than $200 million, prejudgment and postjudgment interest and other relief that the court deems just and proper, it said.

Countrywide, co-founded by Angelo Mozilo, was first lauded and then criticized for originating risky mortgages with seemingly relaxed standards. The mortgages were later packaged into securities and sold to Wall Street. The company's business practices are often linked as one of the contributing factors to the housing crash in 2008.