Aug. 21--Kentucky Retirement Systems will collect $23 million from Bank of America's$16.65 billion settlement with the U.S. Justice Department over accusations that the bank duped investors into buying "toxic" subprime loans, contributing to the economic recession of 2008, officials said Thursday.
KRS lost $21.7 million on products including residential mortgage-backed securities sold by Bank of America and two companies it acquired, Countrywide Financial Corp. and Merrill Lynch. The banks deliberately misrepresented the quality of loans in their products, concealing the fact that many loans were held by people unable to pay their debts, Kentucky Attorney General Jack Conway said.
"To get more than we lost is, I think, a watershed day for the office of the attorney general and the retirement systems, working together. I'm very proud that we're able to recoup this money for our beleaguered pension systems," Conway said after a Washington news conference with U.S. Attorney General Eric Holder.
Five other states -- California, New York, Illinois, Maryland and Delaware -- will collect separate sums from the record-breaking Bank of America settlement for their own investment losses.
Also, Conway said, Kentucky is entitled to "a significant portion" of $7 billion from the settlement that will be set aside to assist consumers hurt by the housing collapse and the recession. That money will be used several ways, including loan modifications for people who owe more than their home is worth, loans to credit-worthy borrowers, and construction of affordable rental housing.
KRS, based in Frankfort, is responsible for providing pensions and health care benefits for 340,626 current and future retirees from state and local governments.
The $23 million recovery is welcome, although it pales in comparison to the agency's unfunded liability, KRS executive director Bill Thielen said. Some experts consider KRS the weakest state pension system in the country, due largely to inadequate state contributions for much of the past two decades. Some nonprofit agencies have sued for the right to exit the system, citing its poor financial condition.
"As of the end of last year, our total liability across all three funds was $17.6 billion," Thielen said. "So we could get $230 million and we would still have a long way to go."
The attorney general said there was nothing he could do about that.
"I readily acknowledge we've got a big hole," Conway said. "I can't go out and make Bank of America pay for what the General Assembly has failed to fund for the last 15 or 17 years."
In a prepared statement on its website, Bank of America said the settlement covers claims that "relate primarily to conduct that occurred at Countrywide and Merrill Lynch prior to Bank of America's acquisition of those entities."
"We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders and allows us to continue to focus on the future," the bank's CEO, Brian Moynihan, said in the statement.
John Cheves: (859) 231-3266. Twitter: @BGPolitics. Blog: Bluegrasspolitics.bloginky.com.
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