New York, California reap mini-bonanza from Bank of America settlement
NEW YORK/LOS ANGELES
NEW YORK/LOS ANGELES (Reuters) - A clutch of states including California, New York and Illinois will share in a mini-bonanza from the $16.65 billion settlement agreed by Bank of America Corp on Thursday.
The settlement announced by the U.S. Department of Justice calls for the second-largest U.S. bank to pay a $9.65 billion cash penalty on charges that it misled investors into buying troubled mortgage-backed securities, and provide $7 billion of relief to struggling homeowners and communities.
Six states will reap nearly $1 billion between them as well as benefiting from cash for consumer relief credits - to be put towards items such as principal reductions for certain types of Federal Housing Administration mortgages.
New York and California will both get $300 million in damages, while Illinois receives $200 million, Maryland gets $75 million, Delaware gets $45 million and Kentucky receives $23 million, according to the individual states' attorneys generals.
"One of the benefits of a resolution like this is that we can actually begin to compensate public pension funds that ... were victims of this, as well as help to bring some ... relief to struggling home owners and other consumers who were victims of the financial crisis," said Tony West, Associate Attorney General of the United States.
All the states gaining cash have unfunded pension liabilities, according to think tank the Pew Charitable Trusts. California has obligations of $131 billion, New York has $21.5 billion, Illinois has $94.6 billion, Maryland has $20.9 billion, Delaware has $1 billion and Kentucky has $21.4 billion.
California, Illinois, Maryland and Kentucky said the damages would reimburse or go towards pension funds.
"No one is going to upgrade a credit or change the borrowing picture as a result, but it could cushion the situation in the difficult task of trying to find money to make up for deficits," said Richard Ciccarone, President & CEO of Merritt Research.
The settlement eclipses the respective $13 billion and $7 billion accords that JPMorgan Chase & Co and Citigroup Inc recently reached to resolve similar claims, but is dwarfed by a $25 billion settlement in 2012 between five of the U.S.’s biggest lenders and 49 states over mortgage malpractice.
Still, some think the settlements do not make up for the damage caused by the 2007-9 financial crisis, sparked by the use of subprime mortgages.
"In the grand scheme of things ... even a settlement like this doesn't begin to compensate the adverse impact on states or the broad population," said James Parrott, chief economist at the Fiscal Policy Institute in New York.
Dennis Kelleher, a former securities and financial markets attorney who runs consumer advocate group Better Markets, says promises made under the 2012 settlement have in many cases not been met and has similar misgivings about Thursday's deal.
“There is no disclosure of the amount of harm done to investors, consumers or clients," Kelleher said. "Once again the Department of Justice has accepted a large dollar amount to give immunity to a Wall Street bank.”
- Dallas Ebola patient vomited outside apartment on way to hospital |
- Islamic State committing 'staggering' crimes in Iraq: U.N. report
- Hong Kong police warn protesters against occupying buildings |
- Israel's Netanyahu to Obama: Don't allow Iran deal that leaves it at nuclear threshold
- Islamic State presses assault on Syrian border town, Kurds warn Turkey |