Bank of America came to the agreement to pay more than $16 billion as settlement for the mortgage bond case, making this the most severe loan-related penalty since the ’08 crisis.
21 Aug 2014 – Bloomberg
The settlement, which includes $9.65 billion in cash and $7 billion in consumer relief, resolves civil investigations by government prosecutors, the U.S. said today.
“This constitutes the largest civil settlement with a single entity in history, addressing conduct uncovered in more than a dozen cases and investigations,” Attorney General Eric Holder said at a press conference today in Washington. “The size and scope of this multibillion-dollar agreement go far beyond the ‘cost of doing business.’”
The agreement cements Bank of America’s status as the firm punished hardest for faulty mortgage practices. It eclipses Citigroup Inc.’s $7 billion settlement in July and JPMorgan Chase & Co.’s $13 billion accord in November. Bank of America’s settlement also comes on top of its $9.5 billion deal in March to resolve related Federal Housing Finance Agency claims.
Bank of America expects the settlement to reduce third-quarter pretax profit by about $5.3 billion, or 43 cents a share after tax, the company said today in a statement. The lender reported an $11.4 billion profit for all of last year.
Bank of America shares surged the most in more than a year and were the best performer today in the 84-company Standard & Poor’s 500 Financials Index, climbing 4.1 percent to close at $16.16. The stock swung to a gain for the year and is now up 3.8 percent in 2014.
The government said Bank of America and its Merrill Lynch and Countrywide Financial units sold billions of dollars of mortgage securities backed by toxic loans and misrepresented the risks to investors.
“It’s kind of like going to your neighborhood grocery store to buy milk advertised as fresh, only to discover that store employees knew the milk you were buying had been left out on the loading dock, unrefrigerated, the entire day before, yet they never told you,” Associate Attorney General Tony West said during the press conference.