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Does Bank of America Still Owe Taxpayers Billions of Dollars?

By all accounts, Bank of America (NYSE: BAC  ) is playing the most expensive game of legal Whac-a-Mole in history. Hours after announcing a $950 million settlement on Wednesday, rumors started circulating about a pair of multibillion-dollar agreements coming down the pike. If true, they would add to an extensive list of misdeeds that Bank of America has been forced to atone for since the financial crisis -- click here to see a comprehensive list of the bank's legal woes.

The first of the rumored deals, which I discuss at greater length here, concerns a dispute with Ambac Financial Group (NASDAQ: AMBC  ) over faulty mortgage-backed securities sold by Bank of America to institutional investors in the lead-up to the crisis. Speculation about an agreement emerged on Wednesday, after the bank disclosed that it set aside an additional $2.4 billion to cover newly anticipated legal losses, a figure eerily similar to the $2.5 billion sought by Ambac Financial.

By contrast, the second seemed to come out of nowhere. According to The Wall Street Journal, Bank of America is engaged in multibillion-dollar settlement talks with the Justice Department and numerous state agencies over investigations into the same practice -- that is, the origination and sale of toxic mortgage-backed securities. Although it "isn't clear how big a settlement might be," the government is purportedly seeking "billions of dollars above" the $2.4 billion charge for reserves.

To be fair, Bank of America had previously disclosed the existence of federal and state investigations into these practices. According to its latest 10-K:

The Corporation has received a number of subpoenas and other requests for information from regulators and governmental authorities regarding [mortgage-backed securities] and other mortgage-related matters, including inquiries, investigations and potential proceedings related to a number of transactions involving the underwriting and issuance of MBS by the Corporation (including legacy entities the Corporation acquired) and participation in certain CDO and structured investment vehicle offerings.

These inquiries and investigations include, among others, investigations by the RMBS Working Group of the Financial Fraud Enforcement Task Force, including the [Department of Justice] and state Attorneys General, concerning the purchase, securitization and underwriting of mortgage loans and RMBS.

But disclosure aside, one would have been excused for concluding that Bank of America had satisfied its crisis-related debts to society. Among others, it settled with Fannie Mae and Freddie Mac -- twice. It entered into the multibillion-dollar National Mortgage Settlement with a laundry list of federal and state regulators two years ago. It lost a civil case brought by the Justice Department over toxic subprime mortgages originated by Countrywide Financial. And it agreed to the aforementioned $9.5 billion deal with the Federal Housing Finance Agency.

So how much more is left? If we've learned anything over the past two years, is that it's difficult to offer a precise number. That being said, the remaining cases appear to gravitate around the two discussed here as well as a $5 billion dispute involving American International Group (NYSE: AIG  ) . Could there be more? Absolutely. But my guess is that once these three are complete, executives at the bank will finally be able to spend less time looking over their shoulders and more time planning for the future.

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Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 20, 2014, at 12:07 PM, AMADUMBE wrote:

    As a customer / shareholder BAC grossly abused its customers in the past many of whom were the poorest members of our society by juggling their checques and payments to ensure that they were always overdrawn thus incurring huge penalty overdraft fees which would make their desperate financial situation even worst...this had been a huge source of profits for BAC...Is this another legal liability ?

  • Report this Comment On April 20, 2014, at 7:47 PM, 4mikie wrote:

    How do YOU spell crooked?

  • Report this Comment On April 20, 2014, at 7:48 PM, dbtheonly wrote:

    "But my guess is that once these three are complete..."

    This time is different.

  • Report this Comment On April 20, 2014, at 7:51 PM, Bail99 wrote:

    I have been trying to refinance with BAC for over a year. They wrecked my credit so I can't refinance with a legitimate bank.

    BAC management take a lesson from that S. Korean asst. principal and hang yourselves.

  • Report this Comment On April 20, 2014, at 10:58 PM, Damocles wrote:

    BOA is using individuals and straw man fake corporations from all corners of the planet to commit unimaginable and varied criminal offenses. The average American and better yet the average American judge is being played like the drums they apparently are. the ending to this ignored nightmare could be quite ugly.

  • Report this Comment On April 21, 2014, at 1:27 PM, honestyproject wrote:

    In 08, Wells Fargo and Wachovia were caught in a "shadow banking" transaction with a Mexican drug cartel. This one transaction generated $367b over an 18 month period. Now, 16 of the world's largest banks are under investigation for illegal Libor transactions comparable to the Wells, Wachovia transaction. Since 04, when deregulation became law, if each of these banks are found to have engaged in 2 transactions per day, such as the Wells, Wachovia, transaction, that would amount to $367b x 16 x 2 x 365 x 10. This is a conservative estimate of how much money the banks have set aside for litigation, stock buybacks and executive bonuses. For the rest of the story read about Government Sanctioned Racketeering.

  • Report this Comment On April 21, 2014, at 6:29 PM, davidscott1 wrote:

    Bank of America Global Banking segment saw revenues rise 6.6% over the last one year to $2.3 billion in first quarter FY14.

  • Report this Comment On April 21, 2014, at 10:43 PM, mlefolle55 wrote:

    I have yet to receive ANY info or answers from Countrywide/BOA for the predatory mortgage fiasco and the class action settlements and we have yet to recover from the resulting financial damage the unnecessary Countrywide forced foreclosure brings. BOA should be dissolved, their assets and the heads of those responsible should be handed to their victims on a silver platter, Game of Thrones style. (ò_ó)

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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