NY seeks to intervene in BoA $8.5 billion pact

NEW YORK/CHARLOTTE, North Carolina (Reuters) - New York's attorney general will oppose Bank of America Corp's $8.5 billion settlement over repurchasing toxic mortgage loans, joining a growing number of unhappy mortgage bond buyers now fighting the pact reached with some of the largest institutional investors in the country.

In court papers filed late Thursday, New York Attorney General Eric Schneiderman sought to intervene in order to "protect the marketplace and the interests of New York investors, the vast majority of whom otherwise are not present before the Court in this proceeding."

The filing comes a day before a scheduled court hearing in the case that's expected to address when parties opposing the deal can seek discovery.

In late June, BofA settled an eight-month dispute with outside investors who bought Countrywide Financial Corp mortgage bonds.

The investors -- including Pacific Investment Management Co, or PIMCO, and BlackRock Inc -- requested the bank repurchase toxic home loans that comprised a series of mortgage-backed securities.

BofA, the investors and securities trustee Bank of New York Mellon agreed to an $8.5 billion settlement that applies to all investors in nearly all Countrywide Financial-created mortgage bonds, but the deal must be approved by a New York court.

The attorney general said in a filing the accord may interfere with his ability to pursue claims against the banks involved, and claims that BofA and Bank of New York may have violated their fiduciary duties in reaching the agreement.

In court documents, Schneiderman echoed complaints from other investors who have said that the deal was done in secret and was rife with conflicts. He called the proposed settlement "both procedurally and substantively flawed."

Schneiderman argued that Bank of New York was conflicted during the negotiations with Bank of America because Countrywide agreed to indemnify it for claims arising out of its role as trustee.

"As trustee, BNYM owed and owes a fiduciary duty of undivided loyalty to trust investors, and its direct financial interest in the consummation and approval of the settlement violates that duty of strict loyalty," said Schneiderman in court filings.

A spokesman for Bank of New York said in a statement that the allegations are "outrageous" and "baseless."

"We are confident that we have fulfilled in all respects our responsibilities as Trustee," he said. "The AG's action is misguided and fails to comprehend the role of the Trustee and the benefit the settlement would provide to investors.

Bank of America declined to comment.

The objection is the latest wrinkle in BofA's push to rid itself of mortgage issues stemming from the collapse of the U.S. housing market.

The bank inherited many of its current problems from Countrywide Financial Corp. BofA bought the largest U.S. subprime mortgage lender in July 2008, months before the global financial crisis peaked.

This year, BofA has agreed to a series of settlements to remove the specter it may have to repurchase billions in soured mortgages.

In January, the bank settled with U.S. government-backed mortgage giants Fannie Mae and Freddie Mac for $2.8 billion.

In April, it settled with bond insurer Assured Guaranty for $1.6 billion.

The case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011.

(Reporting by Andrew Longstreth; Editing by Lisa Shumaker, Bernard Orr)

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Hitachi-Mitsubishi merger talks crumbling: sources

TOKYO (Reuters) - Hitachi Ltd <6501.T> and Mitsubishi Heavy Industries <7011.T> are ready to walk away from merger talks, sources with knowledge of the matter said on Friday, dashing hopes for a groundbreaking marriage of two of Japan's oldest conglomerates.

The suspension of talks comes after news first surfaced on Thursday that the two companies, which can trace their histories back more than 100 years, were discussing a limited combination of some businesses such as next-generation power operations and smart grids, with an eye toward a complete merger later on.

Three sources told Reuters on Friday that talks had stalled because Hitachi is keen to pursue a full merger while Mitsubishi Heavy prefers combining selected operations.

A Mitsubishi Heavy spokesman said on Friday it had nothing new to say other than it had no plan to agree to a merger. Hitachi officials were unavailable for comment.

Shares of both companies fell on Friday as investors learned of the looming failure of the talks. Shares of Hitachi fell 4 percent in early trading while Mitsubishi shares fell 4.7 percent.

"Both Hitachi and Mitsubishi Heavy have a long history and it means their corporate cultures are very different and that makes an merger tough," said Mitsuhige Akino, chief investment manager at Ichiyoshi Investment Management.

"They should aim for a full-blown merger and if they did, that would act as a catalyst for other Japanese firms," he added.

A merger would create a $150 billion revenue infrastructure firm second only to General Electric and could provide the impetus for cost cuts, which are essential if the two companies are to cope with a strong yen and fierce global competition.

According to Thomson Reuters data, a takeover of Mitsubishi Heavy, including its debt, could cost Hitachi around $28 billion, topping Softbank's <9984.T> $17.5 billion purchase of the Japanese unit of Vodafone Group in 2004.

"We think Hitachi's interest in a merger may have been prompted by concern over the poorer competitiveness of its core social infrastructure business," Deutsche Securities analyst, Takeo Miyamoto, said in a report.

Hitachi, a sprawling conglomerate with 900 group companies that make everything from rice cookers to nuclear reactors, forecasts annual sales this business year of 9.5 trillion yen ($120 billion). It employs 360,000 people.

Mitsubishi Heavy is Japan's leading aircraft builder, defense contractor, a major shipbuilder and the lead systems integrator for Japan's space programme. A major partner of Boeing Co , it has annual sales of about 3 trillion yen with 69,000 workers worldwide.

Both companies have struggled for years to make a profit. Hitachi made its first net profit in five years in the year ended March. Over the past decade it has lost an accumulated $14.3 billion compared to a net profit of $160 billion in the same period at General Electric. Mitsubishi Heavy, the nation's leading heavy machinery maker, remains saddled by losses in its jet and shipbuilding units.

A key area in the discussions on infrastructure-related operations between the pair is nuclear power plants.

A combination would give Hitachi, which makes boiling-water reactors, access to Mitsubishi Heavy's pressurized-water reactor technology, which has become the technology of choice for countries around the world.

But for Mitsubishi Heavy, the advantage would be solely in the scale afforded by a combination, which could help it weather an industry downturn as nations around the world demand more stringent safety requirements in the wake of the Fukushima nuclear power plant crisis.

Hitachi will close next week for Japan's traditional Obon summer break with Mitsubishi closing the following week, said JP Morgan analyst Yoshiharu Izumi. "It gives them time to cool off. A general merger is still a possibility," he said.

(Reporting by Taro Fuse, Taiga Uranaka, Kentaro Hamada and Tim Kelly; Editing by Will Waterman and Matt Driskill)

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