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Bank of America Corp’s Last Big Legal Settlement is in the Works

World Economic Forum.

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.

...or more
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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  • Report this Comment On June 06, 2014, at 1:26 PM, MKArch wrote:

    I'm long BAC but are you sure this is the last big settlement out there? AIG was trying to kill the big $8B investor settlement reached a few years ago and although they lost the appeal the judge who made the decision did so just before moving on and the last I remember the new judge taking her place put a hold on the judgment. Maybe I missed this one being finalized but I was under the impression this one is still in limbo.

  • Report this Comment On June 06, 2014, at 2:43 PM, spokanimal wrote:

    If Romney were president, they would have settled all this for half what Obama is trying to gouge out of BAC.

    Holder and Obama are basically anti-capitalist, anti corporation, and very anti-bank. They are using BAC as a surrogate source of Tax Revenue.

    Many of my Liberal friends complain that the economy is being hurt because Banks aren't lending like they should...

    ... but it's really difficult for banks to lend, when they are under siege by the politicians that those same Liberal friends elected.

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Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

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