Ready to be ticked off? Angelo Mozilo, who only made a few hundred million bucks in his final years at Countrywide, will not have to shell out one penny to defend SEC charges of fraud and insider trading. The former Countrywide CEO is covered by an indemnity clause that Bank of America inherited when it acquired the Calabasas-based mortgage company. Also covered are David Sambol and Eric Sieracki, the two Mozilo deputies who were charged as well. Defending the men could cost more than $20 million - and insurance might not handle all of it. From Bloomberg:
"Countrywide may have had some substantial coverage at one time, but they have a lot of cases hanging against them and that coverage is getting eroded," said [James Blinn, a principal at Advisen Ltd., a New York insurance consultant], who estimated the costs at $50 million. "This is going to be really complicated and ugly."
Financial services companies with more than $5 billion in market value in 2007 bought directors' and officers' policies with coverage limits ranging from $50 million to $500 million, Blinn said, citing Advisen's research. Insurance coverage would depend on how much Countrywide bought in 2007 and 2008, the period during which the misdeeds allegedly occurred.
Should Mozilo be convicted, Bank of America and the insurance company could try to recover defense costs, though such claims are usually not pursued. To keep things in financial perspective, the bank reported first-quarter mortgage-banking income - much of it from Countrywide - of $3.31 billion. The moral imperative is another story.