|Bank of America Settles Mortgage Probes for $16.65 Billion|
Bank of America Corp (BAC.N) reached a record $16.65 billion settlement with the U.S. government to settle charges that it and companies it bought misled investors into buying troubled mortgage-backed securities, helping the bank close a major chapter tied to the financial crisis.
The settlement announced by the U.S. Department of Justice calls for the second-largest U.S. bank by assets to pay $9.65 billion in cash to resolve more than a dozen federal and state investigations, and provide $7 billion in help to struggling homeowners and communities.
It is expected to resolve the vast majority of the Charlotte, North Carolina-based bank's remaining liabilities tied to its purchases of Countrywide Financial Corp, once the nation's largest mortgage lender, in July 2008 and Merrill Lynch & Co, six months later.
Bank of America expects the accord to reduce third-quarter earnings by about $5.3 billion before taxes, or about 43 cents per share after taxes.
Bank of America shares rose 31 cents, or 2.03 percent, to $15.83 in early afternoon trading. The settlement's outlines had surfaced earlier in the month, and the formal announcement may increase the chance that many of the bank's mortgage problems are behind it.
BEARING THE BURDENS
The settlement eclipses the respective $13 billion and $7 billion accords that JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) recently reached to resolve similar claims.
It means Bank of America will have paid well over $65 billion to resolve mortgage issues with consumers, investors and government agencies.
Some shareholders still felt as if they were bearing the costs of the mistakes of long-departed officials at Bank of America, Countrywide and Merrill.
“It’s a slight disappointment to me that they settled the issue for this much money,” said Joe Terril, president of Terril & Co in St Louis, which invests $760 million and owns Bank of America shares.
The government is still examining crisis-era mortgage abuses. While Bank of America's settlement is expected to be the largest, charges could still be brought against Credit Suisse Group AG (CSGN.VX), Royal Bank of Scotland Plc (RBS.L) and others, people familiar with the probes have said.
About $5 billion of the cash portion of the settlement is paid as a penalty to the U.S. Treasury. Other portions will go toward compensating investors, including state pension funds. Just under $1 billion will be split among six states, including California, New York and Illinois.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Aug.22, 2014