4 Winners in the Big Bank of America Corp. Settlement

The largest bank settlement in history has given these participants something to smile about

Aug 31, 2014 at 2:52PM

By now, much of the excitement over Bank of America Corp.'s (NYSE:BAC) huge $16.65 billion settlement with the U.S. Department of Justice has died down, as investors and analysts alike hunker down to witness the bank's revival, now that the last of the big mortgage-related legal battles is over.

Though the accord is the priciest yet among the myriad big-bank settlements, the deal has produced some clear winners. Here are four groups that made out especially well – including some you've probably never heard of before.

Bank of America
There's little doubt that the big bank came out smelling like a rose on this one, despite the enormous size of the penalty. Analysts praised the removal of the last of the bank's "overhang" of legal problems regarding bad mortgage loans, and opined that CEO Brian Moynihan can now move forward with his plan to revitalize the bank.

The celebratory feeling emanates almost completely from the belief that this is the last shoddy-mortgage claim for which B of A will have to pay up. Time will tell, of course, whether or not that prediction pans out. Meantime, investors felt confident enough to bid up the bank's share price over $16.00 – a value not seen since April.

As for the amount of the settlement, Bank of America's bottom line won't be pinched as much as you might think. Not only will the bank be able to take sizable tax write-offs, but some of the $7 billion earmarked for homeowner relief will actually come from sources other than B of A.

How? In part because many of those mortgages are now being serviced by companies other than Bank of America, which means that those companies will now be responsible for assisting the borrowers of those troubled loans.

Bank of America shareholders
While the payout will reduce profits for another quarter, the bank's investors received the news cheerfully. Stockholders were recently rewarded for their patience with B of A when the bank raised its dividend from $0.01 to $0.05 per share. This was the first time since the financial crisis that the bank was allowed to do so, and the combination of a stronger balance sheet and no legal troubles on the horizon can only presage good things for B of A's long-suffering shareholders.

Pension funds
Public pension funds that purchased securities containing smoldering MBSes will also get a piece of the settlement pie. Nearly $1 billion of the penalty Bank of America will pay will be disbursed to states like California and New York, where the money will be allocated by those states' attorneys general to various public retirement funds.

Advocacy groups
As part of the consumer aid portion of the accord, B of A will get credit for making loans to low to moderate income borrowers, as well as cleaning up neighborhoods where neglected properties mired in the foreclosure process have blighted the surrounding area. Donations to non-profits that assist in these activities will be credited toward the required amount of relief contained in the settlement.

Two groups in particular that are likely to reap a windfall are NeighborWorks America, an affordable housing advocacy group, and the Interest on Lawyers' Trust Account organization, a legal-aid group for low-income persons. While NeighborWorks may only receive funds if B of A doesn't satisfy its contractual obligations regarding consumer relief by August 2018, IOLTA, which has offices across the U.S., and other legal-aid organizations, are scheduled to receive at least $30 million from the bank, with each jurisdiction to get at least $200,000. 

B of A has four years in which to implement the consumer relief portion of the pact. In many ways, the most expensive settlement in U.S. banking history just might turn out to be better than expected for Bank of America.

Bank of America + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here

Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Apple and Bank of America. The Motley Fool owns shares of Apple and Bank of America. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers