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.

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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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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