Bank of America Corp. (BAC:US) is nearing a $16 billion to $17 billion record settlement with the U.S. Justice Department to end probes into sales of mortgage-backed bonds that fueled the financial crisis, according to a person familiar with the matter.
Under the proposed terms, the bank would pay about $9 billion in cash and the rest in consumer relief to settle federal and state claims, according to the person, who asked not to be named because the negotiations are private. Details of the proposed accord, such as the relief and a statement of facts, are still being negotiated, the person said.
The outlines of the deal were reached last week after a phone call between Attorney General Eric Holder and Bank of America Chief Executive Officer Brian T. Moynihan, the person said. During the July 30 call, Holder said that the government was ready to file a lawsuit in New Jersey if the bank didn’t offer an amount closer to the department’s demand of about $17 billion, according to the person.
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Bank of America separately said yesterday it’s raising its quarterly dividend to 5 cents a share, while dropping a plan to buy back stock, after winning Federal Reserve approval of its proposal for managing capital. The dividend increase, the first in seven years, had been postponed earlier this year while the company fixed errors in its initial plan submitted to the Fed.
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, and Brian Fallon, a Justice Department spokesman, declined to comment on the mortgage settlement.
Bank officials met with Associate Attorney General Tony West yesterday at the Justice Department to work on the settlement, the person said. The Wall Street Journal reported the proposal earlier yesterday.
The agreement, if finalized, would cement Bank of America’s status as the firm punished hardest for faulty mortgage practices. It would eclipse Citigroup Inc.’s $7 billion settlement in July and JPMorgan Chase & Co.’s $13 billion deal in November. At the time, the Justice Department labeled JPMorgan's accord “the largest settlement with a single entity in American history.”
Bank of America’s settlement also comes on top of its $9.5 billion deal in March to resolve related Federal Housing Finance Agency claims. The current talks center on faulty loans that Bank of America, now the second-largest U.S. lender, inherited from Countrywide Financial Corp. and Merrill Lynch & Co., which it purchased in 2008 at the apex of the financial crisis.
Bank of America and firms it acquired issued about $965 billion in mortgage backed securities between 2004 and 2008. Almost three-fourths of those came from Countrywide, according to a person with knowledge of the volumes. About $245 billion in securities have defaulted or become delinquent, though Bank of America only accounted for 4 percent of those, the person said.
Talks between the government and Bank of America began in March and stalled three months later when the company balked at a $17 billion demand, people with knowledge of the matter said at the time. The bank had proposed about $13 billion, which included at least $5 billion in consumer relief.
Negotiations resumed after Citigroup’s settlement on July 14. Prosecutors also demanded that Bank of America pay more of the penalty in cash instead of other remedies, such as mortgage writedowns and consumer relief, one of the people said.
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