Financial News

  • 23 August 2014, 10:08

Bank of America $17bn Record Penalty Confirmed

A record settlement of almost $17bn has been officially confirmed between the US Justice Dept and Bank of America.

The $16.65bn (£10bn) deal, which followed numerous federal and state inquiries, relates to the bank's role in the sale of mortgage-backed securities in the run-up to the financial crisis of 2008.

It demands that America's second-largest bank pays a $5bn cash penalty and provide at least $7bn†of relief to struggling homeowners.

Bank of America said its cash payouts would total $9.65bn under the agreement and result in a $5.3bn hit on its third-quarter earnings.

The deal was expected to resolve the vast majority of the bank's remaining liabilities†tied to its purchases of Countrywide Financial, once the†nation's largest mortgage lender, and Merrill Lynch.

It bought both operations in 2008 as the credit crunch spiralled.†

The settlement is by far the largest deal the justice department has reached with a bank over the 2008 mortgage meltdown.

In the last year, JPMorgan Chase agreed a $13bn settlement while Citigroup reached a separate $7bn†deal.

The settlements are part of the ongoing efforts of President Obama's Financial Fraud Enforcement Task Force and its Residential Mortgage-Backed Securities (RMBS) Working Group, which has recovered $36.65bn to date.

The agreement with Bank of America resolves a number of cases brought by various regulators and state jurisdictions, including those in†California, Delaware, Illinois, Kentucky, Maryland and New York.†

US Attorney Paul J. Fishman for the District of New Jersey said: "In the run-up to the financial crisis, Merrill Lynch bought more and more mortgage loans, packaged them together, and sold them off in securities - even when the bank knew a substantial number of those loans were defective.

"The failure to disclose known risks undermines investor confidence in our financial institutions.

"Today's record-breaking settlement, which includes the resolution of our office's imminent multibillion-dollar suit ..., reflects the seriousness of the lapses that caused staggering losses and wider economic damage."

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