(Adds details of investigations, negotiations, second source)
By Aruna Viswanatha, Karen Freifeld and Jonathan Stempel
Aug 6 Bank of America Corp is close to a
deal with the U.S. Department of Justice to pay more than $16.5
billion to end investigations into mortgage securities that the
bank and companies it bought sold in the run-up to the
financial crisis, a person familiar with the matter said on
A settlement would likely cap more than four years of work
by Brian Moynihan, the bank's chief executive, to rid Bank of
America of nearly all of the massive mortgage liabilities it
took on through the acquisitions of Countrywide Financial Corp
and Merrill Lynch & Co by his predecessor, Kenneth Lewis.
The bank has agreed to pay about $9 billion in cash and the
rest in assistance to struggling homeowners, said the person,
who was not authorized to speak publicly about the matter.
Lawrence Grayson, a Bank of America spokesman, declined to
A $16.5 billion payout would be the largest in a series of
soaring penalties against banks for a range of misconduct,
including violating U.S. sanctions and inappropriately marketing
JPMorgan Chase & Co paid $13 billion last year to
resolve similar civil fraud claims that it misled mortgage bond
investors, and Citigroup Inc agreed to pay $7 billion over
similar charges last month.
Those two settlements and the one expected with Bank of
America are the product of a task force President Barack Obama
directed the Justice Department to convene in 2012 to examine
fraud in mortgage securities that helped fuel the financial
collapse. The announcement came after his administration faced
criticism that it was not sufficiently holding accountable those
who contributed to the crisis.
The Wall Street Journal first reported on Wednesday the
progress in settlement talks.
Negotiations between Bank of America and the government
continued on Wednesday, with a meeting between Bank of America
general counsel Gary Lynch and the No. 3 official at the Justice
Department, Tony West, two people familiar with the talks said.
An announcement of a final deal is not expected this week.
The agreement in principal was reached after a phone call
last week between Moynihan and Attorney General Eric Holder,
Bank of America had earlier sought a meeting between
Moynihan and Holder, but the Justice Department had declined the
request last month.
Last week the bank raised its earlier offer of $14 billion,
to resolve three Justice Department investigations as well as
claims from the Federal Deposit Insurance Corp and several
states, sources said.
The phone call between Moynihan and Holder came after U.S.
District Judge Jed Rakoff in Manhattan on Wednesday ordered Bank
of America to pay a $1.27 billion penalty for what he called a
"brazen fraud" over shoddy mortgages sold by Countrywide, which
the bank bought for $2.5 billion in July 2008.
While a jury last October found the second-largest U.S. bank
liable for the conduct, it was not clear how large a penalty the
bank might face.
Bank of America had argued it should have owed nothing
because Countrywide lost money on the loans.
The separate Justice Department negotiations were driven by
allegations about securities sold by Merrill, which the bank
also agreed to acquire in 2008, people familiar with the matter
Analysts have said the purchases of Countrywide and Merrill
have already cost Bank of America well over $50 billion through
litigation, loan buybacks and other mortgage relief.
According to a regulatory filing, about $245 billion, or
just over one-fourth, of the $965 billion of mortgage-backed
securities and loans issued between 2004 and 2008, and sold to
private investors - and now attributed to Bank of America - are
either in default or severely delinquent.
Countrywide accounted for $187 billion, or 76 percent, of
the problematic securities, while Bank of America accounted for
just $10 billion, or 4 percent. The rest came from Merrill and
the former First Franklin Financial Corp, which Merrill bought
The consumer help portion of the settlement is expected to
mirror past deals, which included cutting loan balances for
underwater borrowers, refinancing mortgages, and other types of
help to struggling homeowners.
Bank of America shares closed Wednesday up 20 cents at
$15.20 on the New York Stock Exchange. They were little changed
after market hours.
The news of the deal comes just after Bank of America said
the Federal Reserve approved its plan to raise its quarterly
dividend for the first time since the financial crisis.
Illinois Attorney General Lisa Madigan is involved in the
negotiations, according to her spokeswoman. New York Attorney
General Eric Schneiderman has also been involved in the talks, a
separate person familiar with his involvement said. A spokesman
for Schneiderman declined comment.
(Reporting by Aruna Viswanatha in Washington and Karen Freifeld
and Jonathan Stempel in New York, additional reporting by Avik
Das in Bangalore; Editing by Richard Chang and Ken Wills)