Investors attack Bank of America's "Frankenstein" MBS settlement Bank of America's plan to pay $8.5bn to compensate 22 institutional investors for soured mortgage-backed securities is a "Frankenstein settlement," and should be rejected, a lawyer for a dissenting group of investors told a New York judge Tuesday. The claim came as lawyers for investors locked in combat over the proposed settlement made their last pitches after eight weeks of hearings. BofA and a group of investors that includes BlackRock, MetLife and Pimco, agreed to the $8.5bn deal more than two years ago to resolve claims on mortgage-backed securities issued by Countrywide, the troubled bank it rescued in 2008. But a contingent of investors, led by American International Group and representing less than 7 per cent of the outstanding claims, is fighting the June 2011 settlement, which must be approved by Judge Barbara Kapnick of the New York state's Supreme Court. This monster is a Frankenstein settlement . . . They [the creators] were not willing to give life to this settlement, instead they brought it to you," Daniel Reilly, AIG's lawyer, told Judge Kapnick. If she finds the deal is acceptable, the dissenting investors will be bound by it. If not, BofA could face new claims and further litigation. It is not clear when she will rule. The bank is already on the hook for around $50bn in settlements, not including this one, stemming from the financial crisis. It is also under investigation by at least three US attorneys" offices - California, New Jersey and Atlanta - and the DoJ for various MBS securities deals. BofA says it has set aside money to cover the $8.5bn. "If this deal is not approved by Judge Kapnick it would create increased uncertainty as to the ultimate cost," said Mike Mayo, analyst at CLSA in New York. That could feed into Federal Reserve stress tests and fears that the bank would not be able to return as much capital as it would want to. The case, which has seen eight weeks of testimony, is the latest example of banks being held accountable for practices at banks they acquired in the past. If this deal is not approved by Judge Kapnick it would create increased uncertainty as to the ultimate cost Mike Mayo, CLSA analysts AIG is the main objector left in the case. The Federal Home Loan Banks of Boston, Chicago and Indianapolis removed their objections this month alongside Cranberry Park, an investment fund. More than 93 per cent of investors support the settlement, Matthew Ingber of Mayer Brown, who represented Bank of New York Mellon, which is the trustee for the claims, said on Monday as part of closing arguments. "Bottom line the trustee acted in good faith," Mr Ingber said. He added that the objectors" arguments "were so over the top they're almost sensational." This case is separate from those brought by US government agencies against BofA and others for mortgage failings. Regulators at the Federal Housing Finance Agency are seeking a penalty of more than $6bn from BofA. JPMorgan Chase is also progressing in its own $4.5bn settlement with private investors announced on Friday and managed by the same law firm, Gibbs & Bruns. That is separate to its $13bn agreement with government agencies. The process differs because there was no opt-out clause for investors in the BofA case, forcing certificate holders to either take the deal or leave it, legal experts said. The BofA case also has only one trustee compared with a larger group of trustees at JPMorgan. "The approval for this settlement would set a dangerously low bar for securitisation trustees," said Mr Reilly on behalf of the dissidents.