After AIG Settlement, Bank of America Corp Has Only 2 Major Legal Cases Remaining

On Wednesday, Bank of America announced a $650 million settlement with American International Group. This leaves the bank with a total outstanding exposure of $19.5 billion.

Jul 17, 2014 at 10:27AM


The last time I updated my comprehensive tally of Bank of America's (NYSE:BAC) post-financial crisis legal settlements, the nation's second largest bank by assets still faced four major cases with potential exposure of $25.3 billion.

Fast-forward to today and Bank of America's future is looking noticeably brighter.

Two latest settlements
At the beginning of April, the bank took its lumps from the Consumer Financial Protection Bureau, incurring a $727 million fine for deceptive marketing practices used to sell credit card add-on products.

"We have consistently warned companies about illegal practices related to credit card add-on products," said CFPB Director Richard Cordray at the time. "Bank of America both deceived consumers and unfairly billed consumers for services not performed."

Even more recently, Bank of America announced Wednesday that it has settled a long-simmering dispute with American International Group (NYSE:AIG), which had sued the bank over toxic mortgage-backed securities. While the $65 million price tag wasn't cheap, it was better than it could have been, given AIG's original demand for $10 billion.

Following the latter deal, Bank of America claims to have resolved "approximately 95% of the unpaid principal balance of all RMBS as to which RMBS securities litigation has been filed or threatened for all Bank of America-related entities."

To put it somewhat differently, these two deals mark the 48th and 49th major legal resolutions that Bank of America has entered into since 2008. (See the following table for the full list.)

So, what's left?
By my count, this leaves the Charlotte, N.C.-based bank with exposure to only two cases involving claims for $19.5 billion -- I'm referring here only to disputes that are big enough to materially affect the bank's bottom line.

The first is a $2.5 billion case brought by Ambac Financial Group (NASDAQ:AMBC) stemming from analogous issues as the AIG case. And the second is a potentially $17 billion deal being pursued by the U.S. Justice Department covering a range of transgressions.

Does this mean Bank of America is nearly done atoning for its past misdeeds? From a legal perspective, the answer appears to be "yes." Though from an operational perspective, there's still considerable progress to be made.



Settlement/Judgment Amount

Pending ...

According to multiple sources, Bank of America is engaged in multibillion-dollar settlement talks with the Justice Department to end investigations into shoddy residential mortgage-backed securities.

While it isn't clear how large a settlement will be, the government is said to be demanding $17 billion in various forms of relief.

Pending ...

Rumors began circulating in April that Bank of America is concluding a settlement with mortgage-bond insurer Ambac Financial Group stemming from toxic mortgage-backed securities sold by the bank and its legacy companies (namely, Countrywide Financial) in the lead-up to the crisis.

According to Bank of America's latest annual report, Ambac is seeking $2.5 billion in damages.

July 2014

Bank of America settles its dispute with American International Group over toxic mortgage-backed securities sold by the bank and its legacy companies.

$650 million

April 2014

Bank of America settles with the Consumer Financial Protection Bureau over allegations that it "forced customers to sign up for extra credit card products."

$727 million

April 2014

Bank of America settles securities fraud claims sold by Merrill Lynch to Allstate.

Undisclosed (the lawsuit covered $167 million in mortgage-backed securities)

April 2014

Bank of America settles securities fraud claims, principally related to residential mortgage-backed securities sold by Countrywide Financial, brought by Allstate.

Undisclosed (Allstate was seeking $700 million)

March 2014

Bank of America settles with Financial Guaranty Insurance Co. over toxic second-lien residential mortgage-backed securities.

$950 million

March 2014

Bank of America settles with the Federal Housing Finance Agency over claims that the bank -- principally, Countrywide Financial -- defrauded Fannie Mae and Freddie Mac.

$9.5 billion

March 2014

Bank of America and former CEO Ken Lewis settle securities-fraud charges with the New York Attorney General related to the bank's 2008 acquisition of Merrill Lynch.

$25 million

February 2014

Bank of America settles a class action force-placed insurance dispute, claiming that it engaged in a "kickback scheme inflating the cost of insurance that homeowners were forced to buy."

$228 million (though QBE Insurance Corp. was included in the settlement)

December 2013

Merrill Lynch settles with the Securities and Exchange Commission related to the structuring and sale of complex mortgage securities to institutional investors in 2006 and 2007.

$131.8 million

December 2013

Countrywide settles with Freddie Mac related to faulty mortgages sold to the government-sponsored entity from 2000 to 2009.

$404 million

October 2013

Bank of America is found liable for fraud over defective mortgages sold to Fannie Mae and Freddie Mac as a part of a shoddy home-loan process at Countrywide known as the "Hustle."

$2 billion (the court has yet to rule on damages, but this is roughly what the government is seeking)

September 2013

A settlement is reached to resolve claims that Bank of America employees made harassing debt collection calls to customers' cell phones in violation of the 1991 Telephone Consumer Protection Act.

$32 million

September 2013

Bank of America is fined by the U.S. Department of Labor for hiring practices that kept qualified black applicants from getting jobs.

$2.2 million

September 2013

Merrill Lynch settles to resolve a class action gender discrimination lawsuit brought by female brokers alleging that they were "paid less than men and deprived of handling their fair share of lucrative accounts."

$39 million

August 2013

A settlement is reached to resolve a class action racial discrimination lawsuit alleging that Merrill Lynch segregated its workforce by, among other things, steering black brokers into clerical positions and reassigning their accounts to white workers.

$160 million

June 2013

A settlement is reached to resolve claims that Countrywide "deceptively lured consumers into buying loans with higher interest rates than originally promised."

$100 million

June 2013

Bank of America is fined by the Financial Industry Regulatory Authority after an investigation found that bank brokers steered retail investors toward a type of mutual fund that was riskier than what they were seeking.

$2 million

May 2013

A settlement is reached to resolve claims brought by mortgage-bond insurer MBIA related primarily to toxic mortgages originated mainly by Countrywide.

$1.7 billion

April 2013

A settlement is reached with private investors in a class action securities-fraud lawsuit involving Countrywide-issued mortgage-backed securities.

$500 million

April 2013

Bank of America settles with the National Credit Union Administration to resolve claims stemming from sales of mortgage-backed securities to credit unions that led them to fail.

$165 million

February 2013

A settlement is reached to resolve allegations that Merrill Lynch failed to pay proper overtime to its client associates.

$12 million

February 2013

A settlement is reached to resolve a class action lawsuit alleging that Bank of America violated the Real Estate Settlement Procedures Act by failing to respond to mortgagees' requests for information relating to the servicing of their home loans.

$19 million

January 2013

Bank of America joined with nine other lenders to resolve claims of foreclosure abuse related to the financial crisis. The aggregate settlement for all participants was $8.5 billion.

$2.9 billion

January 2013

A settlement is reached with Fannie Mae resolving claims that Bank of America -- namely, Countrywide -- sold tens of billions of dollars' worth of faulty mortgages to the government-sponsored entity.

$11.2 billion

September 2012

Bank of America settles a class action lawsuit brought by B of A's shareholders alleging that the bank provided "false and misleading statements about the health of" Merrill Lynch in the lead-up to the acquisition. A judge approved the deal in April 2013.

$2.43 billion

July 2012

Bank of America settles a class action lawsuit alleging that the bank "used deceptive marketing tactics to sign up and charge credit card customers for a useless credit-protection service."

$20 million

July 2012

A settlement is reached with Syncora Holdings regarding claims that the mortgage-bond insurer was duped into insuring Countrywide-issued mortgage-backed securities.

$375 million

March 2012

Bank of America settles with federal and state regulators and agencies related to faulty foreclosure and servicing practices. This was part of the so-called National Mortgage Settlement.

$11.82 billion ($3.2 billion in federal and state payments, $8.58 billion in relief to borrowers)

December 2011

A settlement is made with regard to U.S. Justice Department charges that Countrywide carried out a "widespread pattern or practice of discrimination against qualified African-American and Hispanic borrowers."

$335 million

December 2011

A settlement is reached in a class action suit against Merrill Lynch brought by investors alleging that the investment bank misled them about the risks associated with $16.5 billion of mortgage-backed securities in 18 offerings made between 2006 and 2007.

$315 million

August 2011

Bank of America settles with the City of San Francisco over allegations that the bank's FIA Card Services used a rigged system to arbitrate credit card debt collection disputes.

$5 million

June 2011

Countrywide reaches a preliminary $8.5 billion settlement with The Bank of New York Mellon and 22 institutional investors (including Goldman Sachs and Blackrock) over toxic mortgage-backed securities.

$8.5 billion

May 2011

Countrywide settles with the U.S. Department of Justice over allegations that Countrywide "wrongfully foreclosed upon active duty servicemembers without first obtaining court orders."

$20 million

April 2011

Countrywide settles with mortgage-bond insurer Assured Guaranty over toxic Countrywide-issued mortgage-backed securities.

$1.6 billion

February 2011

Bank of America settles a class action lawsuit claiming that it "improperly increased the interest rate on delinquent or defaulted FIA, MBNA, and Bank of America credit cards by calculating the rate increase starting at the beginning of the billing cycle in which the default or delinquency occurred."

$10 million

January 2011

Bank of America settles a class action debit-card overdraft lawsuit. Here's how one plaintiff described it: "The bank actively provides false or misleading balance information to these customers, including plaintiff, that in turn deceives these customers into making additional transactions that, in turn, will generate even more overdraft fees for the bank."

$410 million

January 2011

A settlement is reached with Freddie Mac to "end all claims, including future claims, related to mortgages sold through 2008 by Countrywide."

$1.28 billion

January 2011

A settlement is reached with Fannie Mae to settle claims on 12,045 Countrywide loans originated between 2004 and 2008.

$1.52 billion

December 2010

Bank of America settles with 19 state attorneys general and four federal agencies over bid-rigging charges in the municipal bond market.

$137 million

November 2010

Countrywide settles a class action lawsuit related to overcharging for mortgage insurance in violation of the Real Estate Settlement Procedures Act of 1974.

$34 million

October 2010

Bank of America covers part of former Countrywide CEO Angelo Mozilo's $67.5 million civil fraud settlement with the SEC.

$20 million

July 2010

Bank of America settles a class action antitrust claims regarding credit card arbitration.

$0 (injunctive relief)

June 2010

Countrywide settles with the Federal Trade Commission over allegations that it overcharged customers who were struggling to hang on to their homes.

$108 million

May 2010

Countrywide settles class action securities fraud claims made by institutional investors, including New York pension funds, alleging that the lender misled them about its health.

$600 million

February 2010

Bank of America finalizes settlement with the SEC over its failure to "properly disclose employee bonuses and financial losses at Merrill Lynch before shareholders approved the merger of the companies in December 2008."

$150 million

July 2009

Bank of America settles a racial discrimination class action accusing it of "routinely giving black workers short shrift with respect to pay, advancement, and resources."

$7.2 million

June 2009

Bank of America finalizes a settlement with the SEC and several states over alleged misrepresentations the bank made to customers about the safety and liquidity of auction-rate securities.

$4.5 billion in "restored liquidity" to the ARS market

January 2009

Merrill Lynch settles a securities fraud case with institutional investors in its common and preferred shares between Oct. 17, 2006, and Dec. 31, 2008. The plaintiffs alleged that the investment bank inflated the price of collateralized debt obligations to boost its own share price.

$475 million

October 2008

Countrywide settles with 11 states over predatory lending allegations including, relaxing underwriting standards, structuring loans with risky features, and misleading consumers with hidden fees and fake marketing claims like its "no closing costs loan."

$8.4 billion in "direct loan relief." At the time, "it was the largest predatory lending settlement in history, far exceeding the $484 million deal struck in 2002 with the Household Finance Corporation."

Sources: Bank of America, U.S. Department of Justice, New York Attorney General's Office, Securities and Exchange Commission, Federal Trade Commission, Consumer Financial Protection Bureau, Reuters, Bloomberg, The New York Times, and The Wall Street Journal.

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