Bank of America settles mortgage probes for $16.65 billion

Thu Aug 21, 2014 12:30pm EDT
 
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By Aruna Viswanatha, Jonathan Stempel and Peter Rudegeair

WASHINGTON/NEW YORK (Reuters) - Bank of America Corp (BAC.N: Quote) 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 on Thursday 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.

"I want to be very clear: The size and the scope of this multibillion-dollar agreement goes far beyond the 'cost of doing business,'" U.S. Attorney General Eric Holder said in announcing the settlement.

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.

Chief Executive Brian Moynihan has spent more than four years trying to shed Bank of America of liabilities from the purchases of Countrywide and Merrill, which were made by his predecessor, Kenneth Lewis. In a statement, Moynihan said the accord is in shareholders' best interests.

“Regulators wanted a pound of flesh, and they got it,” said Joel Conn, president of Lakeshore Capital, an investment firm in Birmingham, Alabama. He said the accord, while larger than he expected, represents a “major cloud that has been lifted” from the bank.

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.   Continued...

 
A Bank of America sign is pictured in Encinitas, California January 14, 2014.  REUTERS/Mike Blake