Bank of America is reportedly negotiating to pay at least $12 billion to settle a number of civil and state probes for allegedly giving cheap mortgages, that led to the 2008 financial crisis This amount could raise the government tab for the bank’s pre-crisis conduct to more than $18 billion, people familiar with the matter revealed.
Bank executives as well as officials from the Justice Department have been actively meeting to discuss the fine recently, the person said. Negotiations, however, are in an “early” phase, another person familiar with the matter cautioned, reported the Wall Street Journal on Thursday.
According to a Financial Times analysis, Bank of America, which acquired Countrywide Financial and Merrill Lynch during the financial crisis, has already paid over $25bn in fines and settlements since 2009. The settlement would resolve the biggest known legal threat to the bank, which has been wracked by litigation since the financial crisis.
At least $5 billion of this $12 billion is expected to go toward consumer relief consisting of help for homeowners in reducing principal amounts and monthly payments, and paying for blight removal in struggling neighborhoods, the paper said, citing people with knowledge about the issue.
Such a deal also could help the Justice Department press other global financial firms to pony up huge amounts for their role in creating the financial crisis that threatened to topple the global banking system and pushed the economy into recession.
However, government negotiators are trying to make the bank pay much more as part of the deal. Under the terms of a recent proposal made by the bank, at least half of the settlement would be in the form of help for homeowners, but that can be done in ways that make the actual cost to the bank significantly less than a direct cash payment to agencies.
Talks between the two sides have heated up in recent days, with meetings taking place at the Justice Department on Monday and the week before, these people said. Still it is unclear when they might reach a tentative settlement given that they still remain far apart on the size of any penalty to be levied by the Justice Department.
A Bank of America spokesman declined to comment on the issue. The Department of Justice also declined to comment on the matter.
Bank of America, JPMorgan and others are accused of selling shoddy home loans to unqualified consumers, packaging those mortgages into securities — allegedly knowing they would eventually go sour — and selling them to investors around the world.
In 2008, the consequences of the loose mortgage practices began to play out. The losses on mortgage investments sparked bank runs. Lending all but stopped. Stock markets plunged, and home values plummeted across the country, says the Washington Post.
In March, the Charlotte-based bank had to pay $9.5bn to resolve a similar case with the Federal Housing Finance Agency, the US housing regulator. And last year, JPMorgan paid $13 billion to settle a number of probes into its mortgage business.
The DoJ has racked up penalties against financial institutions, with Credit Suisse paying $2.6bn in fines and pleading guilty over helping Americans evade paying taxes.