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BofA Settles Credit Unions' Claims

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In yet another resolution of claims related to the sale of risky mortgage based securities (MBS), Bank of America Corporation (BAC - Free Report) has agreed to pay $165 million to the U.S. regulator for credit unions – National Credit Union Administration (NCUA). Yet, BofA neither accepted nor denied any wrong doing.

Countrywide Financial – acquired by BofA in 2008 – had sold risky MBS to five corporate credit unions, which led to their failure following the financial crisis. Since then, the regulator for credit unions has been trying to recover the losses.

Earlier in February, BofA revealed that it had reached an initial agreement with the credit union regulator to settle the claims, without disclosing the amount required to be paid. Also, the company had stated that no additional reserves will be required to settle the claims.

BofA is the fourth bank to settle credit union regulator’s claim. Earlier, the regulatory body had reached settlements with Deutsche Bank AG, HSBC Holdings plc and Citigroup Inc. worth about $171 million. Apart from these, other global banks including Credit Suisse Group, Goldman Sachs Group Inc., Wells Fargo & Company (WFC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Barclays PLC are facing lawsuits from the credit union regulator for similar charges.

For BofA, the settlement of the claim is a positive step towards resolving the issues pertaining to the sale of MBS. Over the past few months, the company has been trying hard to overcome the losses from its home loan business.

In Jan 2013, BofA announced nearly $14 billion worth of settlements to end its mortgage related problems. Further, in 2011, the company had reached an $8.5 billion settlement deal with the private investors who had brought those risky MBS.  

We believe that the resolution of claims will go a long way to improve BofA’s overall efficiency. The company has been striving hard to regain its past glory. For this, it has announced several initiatives that have now started bearing fruits. All the initiatives will lead to enhanced financial performance going forward.

Currently, BofA retains a Zacks Rank #3 (Hold).

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