Bank of America Corp. (BAC:US) is about to learn how much it really paid for its 2008 acquisition of Countrywide Financial Corp: about $70 billion.
The original $2.5 billion price tag swelled as the Charlotte, North Carolina-based company resolved more than a dozen legal disputes with the U.S. government, investors and bond insurers over loans that fueled the financial crisis.
Bank of America and the U.S. Justice Department are nearing a settlement after the company increased its offer to approximately $14 billion, about half of it in cash, according to a person briefed on the matter who asked not to be named because the settlement isn’t final. A deal could be reached as soon as this week, people familiar with the talks have said.
That compared with the bank’s previous $13 billion proposal, which included at least $5 billion in consumer relief such as refinancing and reductions in loan principal, people familiar with the matter have told Bloomberg News. The Justice Department had sought $17 billion, the people have said. A deal would come on top of about $55 billion in mortgage settlements, mostly tied to Countrywide. Details of the higher offer were reported late yesterday by the New York Times.
Chief Executive Officer Brian T. Moynihan, whose predecessor Kenneth D. Lewis led the Countrywide acquisition, has spent much of his tenure untangling that mess. The Justice Department probe is the last major legal hurdle from mortgages, and “the rest of the stuff is pretty well done,” Moynihan, 54, told analysts in May.
Bank of America, the second-biggest U.S. bank by assets, would settle claims after most of its peers. JPMorgan Chase & Co., the largest U.S. lender, reached a $13 billion deal last year while No. 3 Citigroup Inc. agreed to pay $7 billion earlier this month.
Representatives from Bank of America were at the Justice Department yesterday to discuss terms, the people said. The talks with the U.S., which could still fall apart over the breakdown of cash fines and consumer assistance, resumed this month, they said.
Negotiators have discussed faulty loans inherited from Countrywide, which Bank of America purchased in 2008, and Merrill Lynch & Co.
Associate Attorney General Tony West, who has been leading the negotiations since March, was dissatisfied with the bank’s previous offer to pay about $13 billion, including at least $5 billion in consumer relief, two people have said. Lawrence Grayson, a Bank of America spokesman, and Emily Pierce, a Justice Department spokeswoman, declined to comment on the talks.
Countrywide has been blamed by lawmakers and regulators for using lax underwriting standards and predatory lending that fueled its ascent to the biggest U.S. mortgage lender before its collapse and sale.
The amount of any settlement would come on top of the $9.5 billion the bank agreed to pay in March to resolve Federal Housing Finance Agency claims.
In a separate matter, Bank of America was ordered yesterday to pay $1.3 billion in penalties for defective mortgage loans that Countrywide sold to Fannie Mae and Freddie Mac before the crisis. The bank may challenge the ruling, Grayson said.
The cleanup is akin to climbing a mountain burdened by a 250-pound backpack, Moynihan has said. He dismantled much of Countrywide, closing reverse-mortgage and correspondent-lending units, shutting offices and eliminating thousands of jobs. He made deeper staff cuts in the past year after mortgage volumes declined amid higher interest rates and home prices.
“It’s taken longer to resolve the mortgage stuff than we all would have hoped,” Moynihan said in May. “That’s probably the biggest disappointment in terms of just the atmosphere around the company.”
The bank’s settlements include fines and cash payments, agreements to repurchase mortgage bonds and consumer assistance.
Bank of America climbed (BAC:US) 1.6 percent yesterday to close at $15.58. The shares have gained 11 percent since the end of 2008, compared with the 83 percent advance for the 84-company Standard & Poor’s 500 Financials Index.
Bank of America has agreed or been ordered to pay $54.9 billion to resolve the following legal disputes over loans that helped fuel the financial crisis. -- $2.8 billion, Fannie Mae and Freddie Mac Initial Settlement, January 2011. -- $624 million, New York Pension Funds Class Action, February 2011. -- $1.6 billion, Assured Guaranty Ltd., April 2011. -- $8.5 billion, Private investors including BlackRock Inc., June 2011. -- $11.8 billion, National Mortgage Settlement, February 2012. -- $375 million, Syncora Holdings Ltd., July 2012. -- $11.7 billion, buyback package with Fannie Mae, January 2013. -- $2.9 billion, foreclosure review with Federal Reserve and Office of the Comptroller of the Currency, January 2013. -- $500 million, class action led by Iowa, April 2013. -- $1.7 billion, MBIA Inc., May 2013. -- $9.5 billion, Fannie Mae and Freddie Mac securitization, March 2014. -- $950 million, FGIC Corp., April 2014. -- $650 million, American International Group Inc., July 2014. -- $1.3 billion, Fannie Mae and Freddie Mac, July 2014. Bank may appeal judge’s ruling.
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