The WSJ reports,"Bank of America Corp. is in talks to pay at least $12 billion to settle civil probes by the Justice Department and a number of states into the bank's alleged handling of shoddy mortgages, an amount that could raise the government tab for the bank's precrisis conduct to more than $18 billion, according to people familiar with the negotiations.
At least $5 billion of that amount is expected to go toward consumer relief—consisting of help for homeowners in reducing principal amounts, reducing monthly payments and paying for blight removal in struggling neighborhoods, these people said. As the negotiations with the government heat up, the bank is being pressed to pay billions more than the $12 billion it is offering.
The potential tab would leap ahead of other large penalties levied by the Justice Department and U.S. regulators. Even at a giant firm like Bank of America, the second-largest bank in the country by assets, a $12 billion fine would exceed the firm's 2013 profit of $11.43 billion. That profit was the bank's highest in six years, but the looming record legal settlement threatens to break the firm's momentum under Chief Executive Brian Moynihan.
The bank's shareholders have been bracing for a big settlement since April's quarterly earnings announcement. The bank swung to a surprising loss because it set aside more money than expected for legal expenses. It said then that the charges were for previously disclosed mortgage issues, a hint that it was referring to Justice Department negotiations.
Bank of America's legal charges have been a bane to its earnings, with the bank paying more than $60 billion since the financial crisis to settle lawsuits and buy back mortgage securities, said a person close to the bank. At an investor conference last week, Mr. Moynihan noted that the impending Justice Department settlement is a remaining wild card. "Of the big stuff," he said, "that's really the one that's left out there."
Paying at least $5 billion to help homeowners is part of a broader scenario Bank of America has floated, in which it would pay a total $12 billion in addition to the previous $6 billion FHFA settlement, these people said. That $12 billion would include both "hard money," or fines, and "soft money," or consumer relief. The bank has floated the idea of paying more than half of its settlement via soft money.
Government negotiators, however, are pushing the bank to pay billions more and put up more cash as part of the deal. Under the terms of a recent proposal made by the bank, at least half of the settlement would be in the form of help for homeowners, but that can be done in ways that make the actual cost to the bank significantly less than a direct cash payment to agencies".
