When Bank of America Corp's (NYSE: BAC ) CEO Brian Moynihan spoke at the Sanford C. Bernstein Strategic Decisions Conference last month, he came across as frank and honest about the host of problems he has dealt with at the big bank during his tenure. He noted his frustration with the length of time it has taken to clean up the Countrywide mess, but noted that only one big mortgage-related clean-up was still unresolved.
Now, The Wall Street Journal reports that Bank of America, the U.S. Department of Justice, and several states are in negotiations to settle that last big liability issue, but it won't come cheap. The rumored price tag B of A might pay to finally end its mortgage-related legal morass is likely to be in excess of $12 billion.
A whopping payout of $21.5 billion...
When added to the $9.5 billion in penalties and buybacks B of A just forked over to the Federal Housing Finance Agency in March, the government will have squeezed a princely sum from the big bank in a very short amount of time. The WSJ reported that a minimum of $5 billion will be put toward helping homeowners with principal reduction and monthly payments, as well as cleaning up neighborhoods adversely affected by the foreclosure crisis.
Previous reports had estimated that the penalty extracted from Bank of America over the remaining bundle of toxic mortgage-backed securities could reach more than $13 billion, surpassing the amount paid by JPMorgan Chase & Co. (NYSE: JPM ) last November in a similar settlement.
Chances are good that B of A will wind up paying more than JPMorgan, simply because of the incredible mortgage-making factory called Countrywide. While Washington Mutual was known to have whipped up and sold a minimum of $77 billion in subprime loans between 2000 and 2007, Countrywide cranked out well over $1.3 trillion from just 2005 to 2007, according to a lawsuit filed by U.S. Attorney Preet Bharara in 2012. It seems entirely possible that Bank of America will have a bigger bill to settle than JPMorgan.
Despite what promises to be a big hit to the bank's bottom line, investors must be looking forward to the end of B of A's legal trials and tribulations. Though the talks have apparently been ongoing for a few days, I would expect that the two sides will be able to hammer out an agreement fairly soon. After all, Moynihan seems as keen as investors to end the legal wrangling – perhaps, even more so.
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