Bank of America Corp’s 10 Biggest Legal Settlements Since 2008

Bank of America's latest settlement adds to a growing list of massive deals that the North Carolina-based lender has entered into over the last six years.

Jun 16, 2014 at 9:25AM

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If you're a shareholder in Bank of America (NYSE:BAC), then you've probably heard that the North Carolina-based lender is on the cusp of yet another multibillion-dollar legal settlement with the federal government.

This one involves an investigation by the Justice Department and several state attorneys general into how the bank -- and, more specifically, its ne'er-do-well subsidiary Countrywide Financial -- originated faulty mortgages that were then packaged into mortgage-backed securities and sold to institutional investors such as insurance companies, pension funds, and university endowments.

Bank of America is no stranger to complex legal disputes involving multiple adversaries. Since 2008, it has entered into global settlements on four separate occasions for a combined total of $31.6 billion in various types of relief (click here for a full list of Bank of America's settlements over the last six years). 

But even given this history, the latest deal could be historic. While Bank of America has offered to pay a staggering $12 billion to resolve the controversy, the government has threatened formal legal action unless the company raises its bid by another $5 billion.

That would put the total at $17 billion and make an analogous $13 billion deal between JPMorgan Chase (NYSE:JPM) and the same government agencies seem cheap -- particularly so when you consider that Bank of America has already paid the Federal Housing Finance Administration $9.5 billion.

With this in mind, I thought it would be interesting to see how this would compare to Bank of America's previous large settlements. As you can see in the chart below, it would be without equal.

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Given this list -- not to mention the 37 other notable settlements that Bank of America has entered into since the crisis -- it's easy for investors to become desensitized to yet another multibillion-dollar deal. 

However, I would caution you against this for two reasons.

First, every deal matters. Each dollar that is paid to a legal adversary is one that won't make its way to Bank of America's bottom line and thereby eventually to its shareholders via dividends or growth in book value.

The net result is that deals like this diminish the net present value of both the bank itself and each of its individual shares (click here for a division-by-division breakdown of Bank of America's value).

The second reason is all of these settlements are evidence of an organization willing to elevate revenue generation over risk management. This is a mortal sin in banking, and it's one that becomes ingrained in a lender's permanent culture.

The point here is that every settlement matters, and none as much as the massive one coming down the pike now.

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John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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