BoA record settlement of 16.65 billion dollars

A BoA record settlement of $16.65 billion has been reached with the U.S. Department of Justice and State Attorneys General to resolve mortgage-related litigations and investigations.

In addition to the multi-billion dollar settlement, Bank of America (BoA) has also agreed to sign a statement of facts in which it publicly admits it failed, along with its affiliates Countrywide and Merrill Lynch, to disclose to investors vital facts regarding the actual quality of loans they packaged up into RMBS (residential mortgage backed investment securities).

According to Associate Attorney General Tony West, the resolution reached with BoA is the largest ever in American history (reached with a single entity).

Mr. West added:

“But the significance of this settlement lies not just in its size; this agreement is notable because it achieves real accountability for the American people.”

This settlement follows smaller deals over illegal activities related to mortgages before the financial crisis with JPMorgan (for $13 billion) and Citigroup (for $7 billion).

Mostly related to Merrill Lynch & Countrywide activities

BoA says the claims relate mainly to the misconduct that occurred at Merrill Lynch and Countrywide before they were acquired. The bank will pay:

  • A civil monetary penalty: $5.02 billion,
  • Compensatory remediation payments: $4.63 billion,
  • Consumer relief: $7 billion. This will take various forms, including mortgages for borrowers who have had problems getting a loan, as well as loan modifications for homeowners. An independent monitor will be assigned to supervise BoA’s compliance with consumer relief requirements.

The settlement resolves certain current and potential civil claims by the Department of Justice, the Securities Exchange Commission, and the State Attorneys General from New York, Maryland, Kentucky, Illinois, Delaware and California.

BoA’s Chief Executive Officer Brian Moynihan said:

“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.”

BoA informed today that the penalty will probably reduce the company’s Q3 2014 pre-tax earnings by $5.3 billion ($0.43 per share after tax).

Future civil cases looming

The Charlotte-based bank warned that this settlement does not resolve potential criminal claims, potential claims against certain individuals, or certain purported whistleblower actions.

Prosecutors are currently preparing a civil case against Angelo Mozilo, who was Chairman of the Board and CEO of Countrywide until July 2008; he came to embody the exaggerated risk-taking which landed BoA in serious trouble.

Including today’s record-breaking settlement, BoA has spent over $60 billion to date resolving legal issues arising from the financial crisis, more than any other US bank.

Attorney General’s statement

Attorney General Eric Holder said today:

“Bank of America has acknowledged that, in the years leading up to the financial crisis that devastated our economy in 2008, it, Merrill Lynch, and Countrywide sold billions of dollars of RMBS (residential mortgage-backed securities) backed by toxic loans whose quality, and level of risk, they knowingly misrepresented to investors and the U.S. government.”

“These loans contained material underwriting defects; they were secured by properties with inflated appraisals; they failed to comply with federal, state, and local laws; and they were insufficiently collateralized. Yet these financial institutions knowingly, routinely, falsely, and fraudulently marked and sold these loans as sound and reliable investments.”

Video – Attorney General announces BoA settlement