Shares of Bank of America plunged nearly 10% earlier this week, to as low as $11.28 on Wednesday morning from $12.41 on Tuesday afternoon, after CNBC aired a report titled "Suing Bank of America." In the report, embedded below, a CNBC personality interviews a lawyer, Kathy Patrick of Gibbs & Bruns LLP, who the CNBC personality described on-air as representing "Eight large investment firms in this suit against Bank of America."
There was just one problem with the report. There was no lawsuit. Even the law firm's own press release said the holders of residential mortgage-backed securities that Ms. Patrick represents had sent a "Notice of Non-Performance." That's different from filing a lawsuit. A top executive of one of the institutional investors who holds the securities, Laurence Fink of BlackRock, made this clear in his own video appearance, on Bloomberg. Mr. Fink said, "There has been no lawsuit. That's incorrect. There has been a request for information. That's all there is. There has never been a lawsuit, and I think the press has gotten this much larger than it is."
John Carney, who has been hyping what he calls the "the Bank of America put-back lawsuit" as "Put Back Apocalypse" at his CNBC blog, notes that BlackRock is a third owned by Bank of America. Mr. Carney has already named "Three Fund Manager Titans Who Have a Lot to Lose in a Put-Back Apocalypse."
But what about who has a lot to gain from stoking fear about this? What big fund managers have been short-selling Bank of America or other mortgage originator or securitizer stocks? And what about Pimco, which reportedly holds a lot of these residential mortgage-backed securities? In testimony before the Financial Crisis Inquiry Commission, a Pimco managing director, Paul McCulley, boasted that in 2005, sensing a bubble in the housing market, his firm sent teams "on the ground" to 20 American cities for what he called old-fashioned, shoe-leather research that involved interviewing mortgage brokers and real estate agents. Where was Pimco's old-fashioned, shoe-leather research when it came to these mortgage-backed securities it bought from Countrywide, now part of Bank of America?
It seems like once a week some Pimco manager or executive is a "guest host" on CNBC: Mohamed El-Erian on October 7, Neel Kashkari on October 18. Maybe the next time one of them comes on a CNBC reporter could try asking them some tough questions about why Pimco was buying whatever Countrywide was selling?
I'm not defending the securitizers, but for the fees these Pimco guys are earning, you'd think they'd have known what they were buying and would have been willing to bear the risks, rather than turning around years later and making noises about asking for a refund.
The Federal Reserve's role in the whole situation, as both a regulator of Bank of America and a holder of the mortgage-backed securities, is another matter.