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Bank of America expected to settle with federal government

CHARLOTTE, N.C. — With Citigroup announcing a $7 billion settlement with the government over mortgage bonds Monday, attention shifts to a proposed resolution with Bank of America to end similar investigations.

U.S. Attorney General Eric Holder Jr. has refused to meet with Bank of America CEO Brian Moynihan, illustrating the breadth of the disagreement between the bank and the Justice Department.

Still, experts suggest that a settlement is more likely for the Charlotte-based bank than a trial. Like most companies, Bank of America wouldn't want to face the potential costs and negative headlines that come with a trial, experts have said.

"Being sued by the Justice Department or Securities and Exchange Commission, even in a civil context, is painfully public and expensive," said David Smyth, a Raleigh, N.C., lawyer who has defended companies in civil and criminal cases.

"Personally, I would love to see it go to trial from time to time because I think at times the Department of Justice is bullying banks to settle and not face the negative headlines," said Richard Hunt, president of the Consumer Bankers Association, a trade group that represents large U.S. banks.

The settlement has the potential to be Bank of America's largest stemming from the crisis. According to news agency Bloomberg, talks broke down between prosecutors and the bank after it offered to pay more than $12 billion, $5 billion less than what the Justice Department was seeking.

So far, the bank's biggest settlement related to the crisis is an $11.8 billion accord that was part of a $25 billion national mortgage settlement, which resolved state and federal probes into five lenders' foreclosure practices.

In a deal announced Monday, Citigroup and the Justice Department agreed to resolve government claims over the sale of securities tied to risky mortgages. Last year, JPMorgan Chase & Co. agreed to a $13 billion settlement to resolve a similar dispute.

Talks between Bank of America and the Justice Department stalled about June 9, a person familiar with the matter said last week. The first official meeting between the Justice Department and the bank to discuss a potential resolution of the matter was in mid March, said the person, who asked not to be identified by the Charlotte Observer.

Bank of America spokesman Lawrence Grayson declined to comment, as did the Justice Department.

The government has been investigating the bank over potential misconduct regarding bonds sold to investors and backed by home loans that soured and contributed to the financial crisis.

Settling the case could be a milestone for Bank of America in resolving mortgage-related legal issues stemming from the crisis. Earlier this year, Moynihan indicated that the settlement would put the biggest of its outstanding crisis-era legal challenges behind it.

Since the crisis, Bank of America has spent more than $60 billion on legal fees, settlements and agreements to buy back loans that went bad — more than any other bank has spent to resolve similar issues.

On Wednesday, the bank reports earnings for the second quarter. In the first quarter, the bank posted a loss as it felt the effects of a $9.5 billion settlement with the government over the sale of mortgage bonds to Fannie Mae and Freddie Mac. It was the bank's first quarterly loss since 2011.

Also during the first quarter, the bank reported that it put $2.4 billion into its reserves for future legal expenses. Analysts at the time were surprised by the big increase in reserves, but bank executives provided few details.

Citi settlement

Citigroup agreed Monday to pay $7 billion to settle a federal investigation into its handling of risky subprime mortgages, admitting to a pattern of deception that Attorney General Eric Holder said "shattered lives" and contributed to the worst financial crisis in decades. In addition to a $4 billion civil penalty, the bank will also pay $2.5 billion in consumer relief to help borrowers who lost their homes to foreclosure and settle claims from state attorneys general and the Federal Deposit Insurance Corporation. Also on Monday, Citigroup reported its second quarter net income dropped to $181 million from $4.18 billion a year earlier after it took a $3.8 billion charge because of the settlement.

Bank of America expected to settle with federal government 07/14/14 [Last modified: Monday, July 14, 2014 6:50pm]
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