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Bank of America Corporation (BAC - Analyst Report) is in talks with the Department of Justice and many states to pay at least $12 billion, in a bid to settle several litigations and probes related to its pre-crisis mortgage practices. This was first reported by Wall Street Journal on Thursday.

The charges pertain to the bank allegedly providing mortgages to ineligible customers and sale of mortgage-backed securities (MBS) to investors without disclosing the risky nature of the same.

Notably, approximately $5 billion of the total settlement amount will be used to provide consumer relief in form of principal reductions and loan modifications, among others. The remaining amount will be paid in cash as penalty to the regulatory authorities.

As BofA is desperately trying to clear off the litigation issues and move forward, it is being squeezed to pay more. Close sources stated that the settlement amount could rise to $18 billion, as negotiations are still in a preliminary stage.

Nevertheless, in Mar 2014, BofA reached a similar settlement deal with the Federal Housing Finance Agency, the conservator for Fannie Mae (FNMA) and Freddie Mac (FMCC). The settlement, worth nearly $9.3 billion, included cash payment of $6.3 billion as compensation, and remaining for buying back securities worth more than $3 billion.

Therefore, if the abovementioned settlement comes through, this, together with the $9.3 billion deal announced in March, would surpass the $13 billion settlement concluded by JPMorgan Chase & Co. (JPM - Analyst Report) with several law-enforcement agencies in Nov 2013. JPMorgan had resolved all the on-going and probable civil claims related to the sale of MBS.

Though the shareholders of BofA have been anticipating the settlement since April, such a huge amount will surely impact the results. In 2013, the company had earned a net profit of $11.4 billion (highest in six years). Notably, in first-quarter 2014, BofA reported a net loss owing to additional litigation reserves.

Since the financial crisis, BofA has paid over $60 billion to settle lawsuits and repurchase securities, severely affecting its results. Although the tentative settlement, if finalized, will adversely affect the company’s financials, it would remove a huge litigation overhang.

Currently, BofA carries a Zacks Rank #5 (Strong Sell).

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