Bank of America Corp. will pay $16.65 billion to settle
the government's accusations it sold flawed mortgage securities in the run up
to the financial crisis, the largest settlement ever reached between the U.S.
and a single company. The settlement requires the bank to pay $9.65 billion in
cash to the Justice Department, six states, and other government agencies,
including the Securities and Exchange Commission. The bank will also provide $7
billion worth of aid for struggling consumers, through actions such as
modifying mortgages for borrowers who owe more than their homes are worth, or
demolishing derelict properties.
The settlement comes on the heels of similar, but smaller,
deals over precrisis mortgage-related conduct with Citigroup Inc. for
$7 billion and J.P. Morgan Chase & Co. for $13 billion.
Many of the mortgage securities in question were made by
Countrywide Financial Corp. and Merrill Lynch & Co., before Bank of America
agreed to buy the two companies in 2008. But the government found problems with
Bank of America's own mortgage securities as well.
The bank's chief executive, Brian Moynihan, said in a
statement that the settlement is in the best interests of our shareholders, and
allows us to continue to focus on the future. Giant legal charges have depressed
the bank's earnings for years, frustrating some investors.
The settlement also resolves claims by the Federal Housing
Administration and Ginnie Mae. The settlements release the bank from matters
related to mortgage securities as well as collateralized debt obligations and
mortgage origination.
The bank said the settlement will cut third-quarter pretax
earnings by $5.3 billion, or 43 cents per share after tax. The Justice
Department reserved the right to file charges against individuals or criminal
charges.
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