Got Bank Of America CDS? New York AG Says BAC's $8.5 Billion Settlement Is "Unfair and Misleading"; BAC Equity Offering Imminent

When we last looked [15]at the Bank of America joke of a "non-settlement" settlement for a paltry $8.5 billion when $424 billion in total misrepresented (530 in total) Countrywide mortgage trusts were at stake, we said, "we are confident that the legal process will prevail and that the presiding judge on this case, and if not him then certainly the New York District Attorney, will step up and demand a thorough reevaluation of the settlement process." We were, oddly enough, correct. According to a just released filing from the New York Attorney General Eric Schneiderman, Bank of America (and Bank of New York Mellon, one of the tri-party repo banks mind you), violated New York state law and "misled investors." In a knock out punch to Bank of America (and Brian Lin who was profiled here previously [15]), the  bank allegedly violated the New York’s Martin Act and misled investors about its conduct tied to mortgage securitization as Bloomberg summarizes. Schneiderman said he has "potential claims" against Bank of America Corp. and its Countrywide Financial unit. As Zero Hedge alleged all along, "The proposed cash payment is far less than the massive losses investors have faced and will continue to face." What does that mean? Well, as the countersuit [15]by the FHLB indicated (which we are certain will be the basis for the NY AG claims), the likely final settlement is probably going to be about $22 to $27.5 billion. Which also means that the bank's Tier 1  capital is about to be discounted by about 25% lower. Which, lastly, means that the stock is about to plunge due to a massive litigation reserve shortfall which will have to be plugged with, surprise, a new equity capital raise. Which brings us to our original question: got CDS (which closed around 200 bps today, roughly 25 bps wider - it is going much wider tomorrow, especially if the expected Sarkozy-Merkel-Zapatero meeting achieves absolutely nothing)? Cause this baby is going down... and it is probably about to be broken up into good BAC and bad bank, consisting almost entirely of all legacy Countrywide operations. Said otherwise, it could well be time for a CFC-BAC CDS pair trade.

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